Flextronics' CEO Hosts 2012 Investor and Analyst Meeting Conference (Transcript)

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Flextronics International Ltd. (NASDAQ:FLEX)

2012 Investor and Analyst Meeting Conference Transcript

May 31, 2012 1:00 PM ET


Kevin Kessel – Investor Relations

Mike McNamara – Chief Executive Officer

Paul Read – Chief Financial Officer

Caroline Dowling – President, Enterprise Solutions

E.C. Sykes – President, Industrial and Emerging Industries

Paul Humphries – President, High Reliability Solutions

Mike Dennison – President, High Velocity Solutions


Jim Suva – Citi

Osten Bernardez – Cross Research

Craig Hettenbach – Goldman Sachs

Sherri Scribner – Deutsche Bank

Shawn Harrison – Longbow

Brian Alexander - Raymond James

Kevin Kessel

Good afternoon, everybody. I’m Kevin Kessel. I run the Investor Relations program for Flextronics, and I’d like to welcome everybody here this afternoon. We’re very thankful that you all are able to make it out here, for those of you here in-person, as well as on the webcast. I think we have great agenda here that I’m going to walk you through it quickly. And again, I think the hopefully we’ll have great depth discussion and Q&A.

We’re going to begin with after I do the obligatory Safe Harbor. We are begin with Mike McNamara, our CEO, and then move into discussion on our INS business, as well as our industrial and emerging industries by the various President’s of those businesses.

We’ll then have a break in the middle and we’ll follow-up with a discussion on high-reliability solutions, high-velocity solutions and then Paul Read will wrap everything up with the financial overview. At that point, we’ll take a Q&A on the webcast and eventually we’ll break for cocktail and the reception.

I wanted to point out as well that we will have a USB sticks for everybody here in attendance that will have all the slides that you will see today on them and we’ll hand those out at the conclusion of Paul Read’s presentation.

So don’t feel that you have to take copious notes necessarily, you will get everything that you see on the screen to take away with you and for those on the webcast obviously you’ll be able to see all the slides as we go along and all the slides as well will be saved and archived up on our webcast on flextronics.com.

So before we begin, again, I wanted to cover the disclosures. This presentation contained statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risk and uncertainties which may cause actual results to differ materially from those set forth in this presentation.

Such information is subject to change and we undertake no duty or obligation to revise, update or inform you of any changes to forward-looking statements. For disclose -- for a discussion of the risks and uncertainties, you should review our filings with the Securities and Exchange Commission, specifically our most recent annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and any amendments thereto.

This presentation references both GAAP and non-GAAP financial measures that exclude certain amounts that are included in the most directly comparable measures under GAAP, including stock-based compensation, intangible amortization, net of tax effects and settlements of tax contingencies.

Non-GAAP financial measures may also be a supplemental measure of financial performance. Please refer to the Investor section of our website, which contains the reconciliation to the most comparable GAAP measures.

So before I introduce Mike McNamara to come here on the stage, I just wanted to introduce a brief video that we are going to show you here that we prepared.


Mike McNamara

Good afternoon, everybody. So, I’d like to get started by first saying thank you for being here. I know there is a lot of time that, your time is important. We appreciate that you spent an afternoon with us, and hopefully we can make this very worthwhile for you.

The clicker is here. Okay. So let me get started right away. I want to give you a brief executive overview, gives you a good idea of what we are trying to accomplish today. We have pretty extensive global footprint, as many of you know, I’m going to give you some examples of that. A lot of different manufacturing technologies, a lot of different services, and we are going to walk through that as we go through the course of the presentation.

Contract Manufacturing and EMS, since supply chain services is structurally a higher growth business than what you’ll see in the GDP and the electronics industry. I’m going to show you little bit about that later on.

We have transformed our portfolio very significantly. We’ve actually been in the business transformation. I’m going to show you some trend charts of how that transformation has occurred over the last few years, and hopefully it’s interesting to you see how our company has evolved over the years.

Our objective of going through this transformation is to reduce the volatility and increase the operating margins. So, I think, what you’ll see in terms of the transformation and the evidence as a result is very, very compelling for a shareholder.

We have a sustainable business model that can generate very strong free cash flow and a 20% return on capital, are very reliably and predictably. And we are in process of expanding our operating margins to 3.5% this year and that’s recognize that we are in a very, very difficult economy and which probably has some continued challenges as we go forward.

And one of the other things I’m going to talk about is some of the ecosystem shifts that actually affect our business and one of the things that we believe is that we are very well prepared as some of those ecosystem shifts occur. So I’ll kind of walk through what I think about the key ecosystem shifts are and hopefully you agree that those are important considerations for the future.

So just briefly we have like greater than 100 locations. We have these in like 25 million square feet. We have a couple 100,000 employees. This is a very extensive, very sophisticated footprint.

In our services area we have about 25 -- greater than 25 locations and they actually changes pretty regularly. Have a significant amount of employees, very extensive reach, 7 million square feet around the world.

And in design engineering, one of the most important resources of Flextronics. We have over 2000 engineers that are dedicated to design. They are dedicated to innovation, creation, working with their customers to invent and in many case cost optimize and other ways. But these are not process engineers, these are not manufacturing support engineers, these are actually trying to make changes to products.

And these design engineers are literally aquiducous to our entire system. They are dedicated medical, they are dedicated in automotive, they are dedicated in telecom and networking and in servers, in storage and all these different functions, but the key total is about 2000, very extensive.

One of the other place that we have a very extensive footprint is in our manufacturing technologies and we have very significant amount of different kinds of different production technologies, things like printed circuit board and flex circuit, and power technologies, and metal and machining and cable, plastics, advanced displays, all these kind of things are a large bundle of services and capabilities that we have.

Many of which are leading, Multek is one of the preeminent PCB suppliers in the world. Global Services is probably the biggest services organization in the world today. Our Power business now the fourth largest Power business in the world, maybe close to be not inflated the third largest Power business. So within these technologies there is a tremendous amount of power, growth and actually market competitiveness. But the key bundle is probably more that $5 billion of business.

Why that’s valuable to you as an investor is that, it is a great way, we have lots of ways to go penetrate customers and we have lots of ways as a result of these different technologies to create competitive advantage, which really becomes what’s most important to us, is the ability to create competitive advantage for our customer, our competitive advantage for Flextronics, which hopefully is translate into a value creation statement for our customer, which then gives us more and more business in the future.

But as we think about competing on the marketplace for more and more business across multiple different product segments, these become instrumental in terms of the tools that we use and the set of assets throughout Flextronics that we use to go and -- we go and compete and create value for our customers. But we have a lot of different ways to create this differentiation.

One of the other things that’s really important in our business is the extensive relationship with our customers. So I put up here the top 10 customers and I could have put in even more technologies, I put in PCB and power, services, and PCB system integration. I could have added more and more things like cables and machining and other pieces.

But it gives you an idea in today’s manufacturing, the world of EMS manufacturing you have to have a very, very broad set of competencies and capabilities to go service the customer.

Our customers are actually looking for more and more these services and as they engage, they tend to engage more and more of these services with us, and this become good for us, because it create stickiness, creates value for our customer, it’s simplifies our supply chain as we think about penetrating and think about how do we optimize the performance of these end-to-end supply chain for customers, we just have more tools and more assets by which we can go create value for the customer, and that’s how we use them to go to market.

If you don’t have all these tools it’s create more the challenge. It also shows a number of countries we are in, you can see that, typically it’s tend to be very extensive relationships and other thing that is noted in their, you can see a couple of China companies in our top 10, a couple of European companies. So it is a broad access into all kinds of different companies and cultures that we need to be able to attract with our set of services in order to grow with the business as they grow.

But in the historical growth rate, obviously the company has grown very, very rapidly for a very, very long period of time. There is a dip in the revenues as you know is not surprisingly as result of the 2008 recession.

But what’s really important about this slide is we’ve demonstrate an ability to scale and operate a very, very sophisticated system. So just the complexity associated with managing all these relationships, managing the different production technologies, managing the size of the business we have. We’ve actually been able to demonstrate that we actually can scale and can operate a very, very powerful system.

And what this has done is we’ve actually and as we’ve move through the years in building this system, we’ve actually created probably one of the most sophisticated tax infrastructures in the world, one of the most sophisticated HR systems in the world, most sophisticated IT systems in the world.

So, there as it through this our core infrastructure is already developed. So as we think about layering on our next $10 billion of business. We think about already having the core infrastructure by which to go make that happen, very sophisticated and performance is very well.

I talked earlier about that there is a structural growth in EMS that actually over and above the GDP in electronics. And I -- what I try to do is, is do a graph that illustrate this. And what this shows is, is that, the GDP over the last 10 years, the world GDP has grown on average about 3.8% a year.

If you look at the electronics industry, because of the continued adoption of more and more electronics in the world, that’s grown about 6% on average over the last 10 years. If you look at EMS business it’s grown about 8.6% over the last few years. And the reason for is a -- so the conclusion is, it’s literally a structurally higher growth business, not electronics or the GDP.

So and the potential size of this and there is some reason for this that are very, very important, one is, electronics grows more GDP because the continued adoption of more and more electronics.

We grow more and more than electronics because more and more companies outsource every year and additionally, there is new market that we pick on a continuous basis. So which allows us to expand even further and we’ve expanded as you in the mechanicals and power technologies and other things that are broader than just the growth of electronics.

But the potential size of what we can do is kind of unlimited and in fact we actually create (inaudible) to a certain standpoint, if we decide to go after for instance the medical industries, five or six years ago, we actually had almost no competence in the medical industry. We had not been through an FDA certification. We didn’t have dedicated quality systems. We didn’t have dedicated manufacturing facilities. We didn’t have a way of operating that actually achieved zero DPM, defects per million for you finance guys.

But what we do, but if you go fast forward that today we’ve been through many, many FDA audits and many different countries we have sophisticated quality systems, in fact sometimes our OEM customers actually have asked that if they can lease our quality system from us, we have all certification, all the dedicated factory, all the know-how, it’s move from a $150 million business in probably 2005 to what’s today about $1.4 billion business.

When we brought customers in, medical customers in five years ago, it was a very difficult sell. When we bring medical customer in today they actually recognize that we can actually build it as well as they can. And what that does is opens up an avenue for them to give us more business, but if we didn’t have the confidence five years ago they want to open that up and we can do that, industry after, industry after, industry, things like renewable energy is a focus area for us.

One of the people you saw in the video was our, it was Jeannine Sargent, he is the President of our Renewable Energy Groups. So here is a whole new product category with different product technologies that we have now opened up as a way for us to go penetrate and as we build more and more confidence in it, our ability to do more and more those projects will increase. So we actually have a way that continue to scale and expand this business in excess of GDP and in excess of electronics.

The other thing is larger outsourcing deals are continuing. And what I mean by large outsourcing deals is one of the things that we did last year as we continue to pick up factories for customers and help them rationalize their business.

We don’t take the liabilities with those factories but we should take out in the task of improving their supply chain and re-rationalizing the entire supply chain for our customers.

And just last year, the factories we picked up were close to $1 billion. So these opportunities continue to be out there. We continue to be extremely well positioned to take advantage of those businesses and the reason for that is we’ve just done it so much so often. We have this huge scale. We have more opportunities to be successful, more assets to deploy in creating our supply chain that is better.

We have a more likely -- we have more likely avenue for excess because of our ability to absorb these businesses, we probably picked up 50 or 60 or 70 factories over the last 10 years. We had outsourcing deals come to us in excess of $1 billion multiple times and then the complete rationalization of these supply chain that no one else in the industry has been able to do this.

So this has companies think about continuously rationalizing their supply chains and optimizing the supply chain. This is continuing. That’s what creates even further growth.

Then one last thing I might add is the economics for outsourcing are compelling. They were compelling when HP first did it 20 years ago when they were looking for a labor arbitrage and they’re compelling today.

So as these new industries have more and more electronics, they then have more and more challenges as they go international and need to build a multiple occasions around the world. And as that demand changes, they need to have a flexible footprint.

In the economics around contract manufacturing that existed when HP was doing a labor arbitrage 20 years ago, still exist today. When companies from the automotive industry or the companies from the energy industry or companies from the medical industry see what their opportunities are of using contract manufacturers.

So this becomes a very, very important piece of how we can continue to drive business. But it’s actually genuinely structurally higher and we’re probably keeping structurally higher growth rate business for the next foreseeable future actually.

I’m going to talk about little bit of our portfolio management and how we’ve transformed our business over the last few years. There is four primary business groups that we typically report on with the groups and just to make sure we get everybody on the same page, let me go through them briefly.

First is High Reliability Solutions, Medical, Automotive, Aerospace and Defense, super high reliability, defects per million in the single digits, certified, special certified factories, specific qualities, a whole set of characteristics unique to that group, industrial and emerging industries, a whole variety of different industries, it’s actually about 20 different sub segments but everything from renewable energy to equipment to automation to appliances are real broad set.

High velocity solutions which is penetrating into the consumer space, mobility, internet access devices, any other kind of higher volume type of products that exist in the world today and then integrated network solutions, which is typically your telecom networking and server/storage.

If you look at our portfolio transition, I can take a few minutes with this slide. I have their distribution of revenue in FY ‘07 and FY ‘12 and FY ’13. And this is a very similar slide that I have last year as I was explaining our transformation when we’re going through the same conference last May. In FY ‘07, we are 58% in High Velocity kind of business.

So we are predominantly competing with Foxconn and most of the Taiwanese ODM was the primary source of our -- revenue is primarily sourced from the consumer products but our competition was heavily based on the Taiwanese.

As we move through the transition, we’ve worked hard to diversify that portfolio. We worked hard at creating growth in integrated network services, high reliability and industrial and emerging. And as you can see, we’ve transitioned a portfolio all the way through 2012. So that the volume business moves from 58% to 39% and that’s on a growth rate going from $19 billion to almost $30 billion.

So not only did we transition the portfolio but we simultaneously grew revenue. In FY ‘13 that transition continues because we continue to grow those businesses, the INS, the high reliability of industrial engineering, those continue to have very, very strong growth rates. They have had very strong growth rates for the last -- since FY ‘07. We expect them to continue to have strong rates going forward and the amount of businesses has reduced in our High Velocity business.

So this is quite a portfolio shift and this is something that will continue to do in our portfolio shift. It will be our objective to continually change the emphasis of which products we go -- which segments we go after, which technologies we go after, which geographies go after. You should expect out of us that we will continually do evolve and change.

If you look at some of the high velocity business over the last three years, you would have seen -- study that you would have seen a lot of the ODMs, the operating profit has gone from about 2.5% and 3% down to about 1.5% in a pretty steady slide over the last three years.

And you’ve seen Foxconn at the same time who has the largest EMS in Asia. Over the last three years, their operating profits have gone from 4.5 down to about 1.5. So as these product transitions have changed as the emergence of things like iPad has created disruptions in other markets and as market leadership shifts whether its cellphones or other things, these shifts occur quickly and fast. We’re going to go shift right along with them and want the market change its objective to move to a different direction.

What’s good about our portfolio is that we have such a balance portfolio today, we actually can make that shift without having much of an impact in earnings per share in cash flow. So one of the benefits that we have is by having this diverse portfolio, we actually have choice. And we were actively working on that choice.

So we’re going to continually actively manage this portfolio to adapt those ecosystem changes and our objective will be to continuously treat this portfolio to expand our operating margins. The other thing I want to say is about this 30%, the objective is not to take that down.

The objective is to run our portfolio with a balance in that business, that 30% bundle represents the largest available market in the world today. Our objective is not to win the market share there. It is our objective to win the market share at all the other groups but it’s our objective to participate with that total timing ways where we can actually add unique value, where we can actually realize good margin, good cash flow and more steady and predictable reliable business.

So Mike’s going to -- Mike Dennison is going to come up after me and talk about how do we play this market. With this 30%, it’s unbelievably value asset -- valuable asset, which we think it is once we go through this last transition as we go through this transformation, just move up the PC ODMs, we’ve talked about one of our large cellphone customers that will reduce in our system, kind of, as we speak.

And what those transition done, 30% that’s left is a really valuable part of Flextronics. We’re going to show you how we’re going to manage that to be a valuable part of Flextronics. So kind of the summary here is we started in a place where we were 60% volume manufacturer, we’re now down to 30% volume manufacturer with a different content in that 30%, which we’re going to show you later.

But all the while over this last seven years, we’ve had, very, very -- last six years, we’ve had very, very strong growth in our -- in our other markets that have allowed us to be able to have this choice and put us in a position where we can manage our portfolio to go optimize our cash flow and our operating profits and earnings per share.

So we’re pretty excited about that change. I’ll put a little bit more definition to these same four business groups. You look at the chart. There are four groups in the left. I took a little bit deeper dive in each one of the different groups and what you can see is that our 2007 market rates ranked consistent with that last pie chart I showed you.

We now fast forward to what our 2012 market share and you could see we’ve been able to move. We’ve had very, very strong compounded annual growth rates and literally every category with the exception of High Velocity.

So while people have spend a lot of time talking about High Velocity and ODM PCs and OEMs, we’ve actually been double down and driving these other businesses to market leadership positions. And in many cases, we actually are -- do have the number one market rank but we’ve improved those market positions and also in every single category except high velocity where we’ve actually went form second to fourth.

Once again what I said before is the objective is not to have number one market position in that category because our number one market share in that category means, we’re doing like 1.25% operating profit which is not an objective.

So what you can see is as we’ve transitioned the portfolio, we’ve competed very, very effectively in the market place. We have very, very strong market positions and it gives us a great opportunity to go compete in within the market place, which we like a lot.

There has also been a lot of talk about low volume high mix business. What I did was, we just took each of the north American competitors in Flextronics and we said just if you separate out all that velocity business as reported by us and as reported by them, whose really doing more the complex lower volume high mix business.

There is a lot of people that think that smaller companies are leaders in low volume high mix and it gets never ceases to like completely confuse me why anybody would actually say that.

But you can kind of see, what you separate the velocity business out of each one, I took 2012 revenues, our 2012 of course and just lifted these are, I mean, and what it just show is Flextronics is like the undisputed leader in low volume, high mix complex business.

And you could see the market rates -- the market ranks in the low volume, high mix kind of businesses. So this is a -- and this is important. So there is a reason that lot of people talk about it. So then the characteristics are and the key attributes are on the right side of that chart. It is important because these tend to have longer product lifecycle. They tend to have less forecast variability. They tend to have higher margins, higher complexity.

The footprint you need to serve them is different. You tend to need more regional manufacturing and you tend to need the closure to the customer design centers, which actually drops low the competition out. But the result is that this actually is a more interesting piece of business. It is valuable to have a strong market position here. It does lead to greater predictability for an investor. It does lead to more consistent cash flows.

So it is actually a more -- if you think about our risk adjusted return on capital, this actually leads to a better risk adjusted return on capital model for investors. So it’s something that’s important to us to be the market leader and it’s important for us to continue to grow and -- but we are enjoying a very, very strong position today.

I have run a slide on that too, just to show you some of the slide, I used this same group of businesses but again it’s all of Flextronics business with the exception of the High Velocity business. And what you can look at in that chart is just like a nice steady, linear, predictable growth rate, which is one of the things that we’re after as we look to balance our portfolio.

It is our objective to continually to create more predictability, more consistent cash flows, less volatility and as we move that portfolio, eventually more and more of these kind of products, along with it came improvement of all those characteristics which we think our extraordinarily valuable. And there is no reason for this growth to not continue into the future. We expect the same going into the next couple of years that we would expect to see nice steady controlled growth.

We have two slides on our components. I know everybody wants to hear about components. I just want to show off a couple of slides that you wouldn’t have seen before. This is our Flex Power, the revenue in Flex Power. So it shows what it’s been over that same time frame from FY ‘07 to now.

77% compounded annual growth rate, this business has been absolutely rocking for us on a continuous basis. I know people are not happy with this business in terms of investors. They are trying to tell like we can’t get more value out of it. They’d invest heavily in design engineering. We’ve invested heavily in developing the manufacturing footprint. We’ve invested heavily in developing the manufacturing system required to run $1 billion business and actually scale the $2 billion.

And this takes time. It takes effort. We had to change the management teams, the management team that runs $200 million business. It’s not the same management team that can run $1.2 billion management team. We had optimized the footprint. We’re almost done with their optimization of footprint. We now said we would take one more facility out of our system in September, that’s on schedule.

When we take that out of our system, we view this to be an optimized footprint to handle the growth going into the future. And that we will expect the margin expansion in the second half. But this is growing on the back of very innovated technologies, both in servers and storage which generates high efficient.

We are very, very -- we have good patented technology around high efficiency servers, power supplies and we have the most advanced dense charges in the world.

And as things need more charging capacity as phones become more screen size, more battery is required, more power is required to fill those. Our dense chargers are exactly in the right place at the right time.

As things like the displays need to be charged, we’re right in the sweet spot of technology. So as you think about the evolution in the mobile and the cloud in the important characteristics of power, one is dense charger compact units, you guys all have asked one today.

Those will be able to power any kind of iPad or equivalent or anything else. At the same time, we think about the emergence of the cloud and the power of the data centers that are going in today, have a high efficiency power supplies is an absolutely gold mine. And both these businesses are growing very, very rapidly for us and what we’re -- many are disappointed, we haven’t been able to achieve the profitability targets, we want, we will and it will be an important asset for us.

We’ll take a slower growth rate which is still growing. You will see -- we expect pretty strong growth in FY ‘13. We had a big dip during the recession, a larger dip that I would say is normal.

We actually were too leveraged up with things like Sony Ericsson and Motorola cellphones which had a significant deterioration during that time frame. That affected us a lot.

We actually went down more than the industry and it’s been a long grind back, back up and outstanding asset, state-of-the-art technologies, once again focused on mobility, focused on high-end networking datacom and those kind of cards.

The key point, these two wired assets, these are valuable assets. If you think about it, they are not reflected in our stock price today. So we’ve been selling these at roughly break-even. It’s kind of, you get similar story in a quarter-by-quarter basis including some frustration.

These things are important assets. They are state-of-the art. They are growing. They’re in the right product categories. They are in the right physical locations. We think they are going to turn into outstanding assets for us and will we expect to see that change occurring in the second half of our fiscal ’13? So one thing to think about is you are an investor, there are these two big assets back here, that you’re seeing there that have literally no value in the current stock price, so it’s pure upside.

I only have two financial slides. Paul is going go through the financials in detail. The first one is GAAP EPS and what you can see up here and the reason I focus on GAAP EPS is quality of earnings is super important to us.

As you know, we quick calling out one-time charges, we quick calling out, because those were part of the businesses and we’ve always had this kind of disruptions. We just like put them all into our numbers now.

The -- and you can see that the change, but if you look at the last two years, the strength of the GAAP EPS. And if you look out what our analyst estimate is for this next year, you can see, this also we are getting into very predictability, very steady, very high-quality of earnings. And this imparted what’s enabling our stock buyback and some of the other financial activities that we are able to accomplish. But it’s becoming exceptionally high and actually we anticipate this predictability to continue into the future.

I’ll turn to slide over the same period of the cash flow generation. And two key points here and that is we just consistently generate a lot of cash, particularly over the last few years. So you will see in that quality of earnings, it’s going to generate very predictable cash coming out of the system, coming into our system.

But what’s also very, very important is that this business generates cash in a downturn. We had the worst downturn in many, many years as everybody knows. We took a $1 billion of debt out, we generated tons of cash flow and we were able to maintain that cash flow as the market picked up. And it’s because of very disciplined spending on CapEx and depreciation, making sure that this are roughly imbalanced, being very careful to continually generate cash to be able to fund our company going forward.

But it’s -- once again, as this quality of earnings get more predictable, our cash flow will get predictable. This is all going to come on the back of a portfolio activity, a balancing activity and a transformation that allows us to have more predicable earnings less volatility.

I have one last slide that I’m going to -- actually I have two slides, but I want to hit the key ecosystem shifts real briefly. These are the things that we think a lot about. We think about are we in the right place at the right time, are we positioned well, do we need to do something different? One of the most important ecosystem shift that we are seeing is rising costs in China.

And as these costs go up, the only thing I can say is, it’s okay. We have not chased huge capacity increases into Mainland China. We have a choice of doing that. We decided instead we would actually rather diversify. So we’ve added more capacity in Malaysia last year than in China, as a good example.

So we have like 75,000 people in low costs regions in Mexico, in Eastern Europe and in Brazil and India and in Malaysia, Indonesia. These are all strong hold for us. We’ve been in Asia for, I’d say not lot, 10 years. We’ve been in Malaysia for 20 years. We’ve been in India now probably for seven or eight years. We’ve been in Mexico since ’96.

But we had the biggest operation in Mexico, the biggest operation in Brazil, the biggest operation in Southeast Asia. We have the biggest operations in Eastern Europe. As this -- as labor costs get too high and that doesn’t mean that books going to run out of China, but as they trend up and more choice becomes available, we are very well-positioned. So I can say that ecosystem shift, we are ready for it.

Second thing is increasing regulation and driving regional manufacturing. One of the things you’ll see is every government in the world is trying to get manufacturing into their country. And this is driving more and more drive for regionalization. It’s driving more and more drive for more automation in different regions. It’s driving all these kind of activities that require all this regional manufacturing.

And once again, we actually have outside of China the largest footprint of manufacturing. We are in about 30 different countries, so 29 not counting China. And we are extremely well-positioned both from a North American footprint, as well as the Taiwanese footprint.

I think about a third ecosystem shift, I think about the product convergence that’s happening with multiple and with new technologies. And kind of the best way I described this as, we built Nespresso machines.

A lot of you guys know that, as I can little make yourself a little Espresso, little cappuccino and we also make wireless modules for a company called Sierra Wireless. It turns out Sierra Wireless is now embedding wireless modules in Nespresso machines. So they can track usage, they can track the water temperature and they can do all this and they can manage it.

So there is a massive product convergence going on where more and more technologies are going into an existing product. And as that convergence takes hold, we are enormously well-prepared, because we actually built more different products for more different technologies than anybody in the world today. So when Nespresso comes into us and says, wow, I’m going to have to start embedding wireless modules and we will say we’ll help you design that, because we already knew how to do wireless modules.

So as this convergence activities take place, which is all been created by mobility and the cloud, which is one of my ecosystem shifts, we are extremely well-prepared, because we actually have a broader portfolio that anybody in the world today of different products.

One of the other big shifts is the end-to-end supply chain. Our customers are going to experiencing a more challenging -- it will be more challenging to grow, more challenging to add margin. And very often, what -- the way the companies are starting to respond where our OEMs just trying to respond, they are thinking about their end-to-end supply chain more and more.

Where in the past it may have put out a board to bid and you have multiple people bidding on it. Today, they’ve done that. They’ve done that for 15 years. Today how they think about things is they think about the whole ecosystem now, because they have to find new way. They’ve already done that. They’ve got cost going up in China. They had the competitive bidding process. Now, how do they take it to the next level and the way they take it to the next level is the end-to-end supply chain.

So when it comes to participating in that end-to-end supply chain, we are extremely well-positioned. We’ve been investing in innovative software tools to help us go manage that ecosystem, go manage the control towers associated with that O&M system, and we have more resources in more places with more assets that we can bring to bear to create value to that customers, as he thinks about, how do I optimize my end-to-end supply chain.

And this is further created by the need for more and more regional manufacturing, more and more distributed demand around the world. As all these things occur then end-to-end supply chain becomes more important, we are extraordinarily well-positioned.

Now last thing is mobility and cloud. Many of you know we’ve been in mobility products for many, many years. We have cloud-based things, if you take our servers to our telecom networking as a bundle. We have more -- we have -- we’re number one market share in those kinds of products. We have more capabilities. We do boards. We do power systems. We do mechanical technologies. We do supply chain services, repair, everything associated with that. So, once again, as we think about where those ecosystem shifts, I wonder some of the challenges we feel we are really well-prepared for the future.

So, if I think talk to conclusion, I think I might take three minutes overtime. We are well-positioned with scale, capability and as a result, the cost structure to win. We are operating this product portfolio that we now believe is nicely imbalanced as we go into the future. As we think about our core objectives of driving cash flow, of driving earnings per share and being able to compete and winning the marketplace to continue to expand the company. We have more predictability and we are positioned very, very well.

We are generating free cash flow, we are fundamentally structured and what’s different about this 3.5% operating profit is it’s kind of less aspirational to me, as we move to this portfolio shift and as we complete our transition, it’s actually structurally set to achieve the 3.5% operating profit, which is our goal for us this year. And we are well-positioned for the future ecosystem shift.

So, with that, I’ll close up. We are obviously going to have questions later on as highlighted by Kevin in the agenda. And with that, I’m going to ask Caroline Dowling to come up and she is going to talk a little about more our Integrated Networking Solutions. Thank you.

Caroline Dowling

That’s a great video, I think capturing what INS does in our business units. It’s kind of exciting times to be in this space. Just now I read this morning that Cisco talked about 29% growth between now and 2016 in network traffic alone.

So it’s a great place to be. We’d have believe 300 million e-mails a day that there you go, so lots of traffic, lots of video and lots of data moving in the space. So I’m going to talk to you little bit about what’s going on in the INS Solutions today. Give me some key facts? The big takeaways from me, just to understand what we do in INS, understand our differentiating capabilities, how we go to market and win, and the power of the company in terms of our capabilities that Mike talked to you about earlier.

So you can see, the fiscal ’12 our revenues are about $11.5 billion, about 39% of the total company revenue. We also have -- we are the largest global provider of footprint in the world. We have about 700 products design engineers and Mike talked about 2000 across the company. 700 of those engineers of designed are dedicated to the infrastructure segment. We’ve got 130 customers and we are number one in this space in the EMS industry, strong capability.

The highlights for fiscal ’12, we grow our business by about $700 million. We sustained our operating margins. We do business with the market leaders in this industry today. We’ve gained many awards from those lines. We saw Brocade up here today, from Cisco, from Ciena and from many others.

Our market and technology leader client base, so we have the strongest and most diverse portfolio of products in networking and telecommunications, and in server and storage. It is unmatched in the industry and what we present to market today under deep capability. When you talk about scale and the complex products experience, the North American competitors, we are too experienced in the term of size.

Some high numbers are harder to get, so I think they are about $10 billion, but in much lower complexity product. Flextronics is the highest complexity offering in this space. You look at the INS end market growth, on a constant currency basis, there’s 5% growth projected between now and in the next three years to 2015. That’s about a 5% average growth in the space itself. But there’s only 35% of that outsourced today. That drives some new behaviors and some new requirements from the OEM in our customers.

Their solution today includes the requirement for end-to-end and cost of ownership, but they want to be able to bring all of the pieces to bear to deliver a product solution that derives more value.

So they look at the total cost of acquiring a product, so it’s no longer piecemeal. It’s no longer just about the printed circuit board. It’s no longer just about the box suite. They actually try to measure how the product performs end-to-end in the industry today, and Flextronics are best positioned with all of the capability we have across the globe to deliver that.

Cloud and mobility and all of the data you saw on the earlier video command a much higher and agile or much higher agility to the supply chain. Your ability to respond to that is higher than it was ever in the industry.

High product complexity drives the need for experience and we have the deepest in the industry with 700 plus product engineers. We are number one worldwide. We own 20% of the total outsourced market today. That’s one-fifth of the entire outsourced market Flextronics has in the INS space.

IT and brand protection under security around our client’s intellectual property, on the brand protection is becoming more of a requirement and we have the strongest CSER compliance in the industry.

Our global centers of excellence, so if you look across the world today and see what Flextronics operate, it’s an every major geo. So from an infrastructure perspective going to market for server and for storage, for networking, for telecommunications, we have the deepest capability across the industry in every major geo in the world.

So while China, labor rates continue to increase, the taxes change, the VAT changes and costs start to pile on for customers, our ability to look at the total cost of ownership to serve local and regional market in the best -- in the EMS phase today. Some examples of that market leadership, both the entire LTE business that outsourcer, Flextronics own 60% of that across the world right now.

We produce some of the most complex optical switches that exists in the markets with over $1 billion in this space. We possess the largest design network. I talked about our 700 design engineers and product design engineers earlier. We have 2,500 engineers and technicians and support to that group.

Think about what that means to the filtering for RF, for [tenants], for complex optical and how we go to market, and then for our JBM and ODM solutions for server and storage, deep broad capability. We deliver component solutions. We understand smart power and the requirements from an energy management perspective.

Complex 60, 70 layered wire board and we have very complex mechanical solutions that we design for markets. Our scale, our capability and our know-how is leveraged worldwide, which is why we continue to grow and earn that market share owning 20% of the available markets right now.

The end-to-end capability is important from a vertical perspective and continues to be. So as I mentioned earlier, some of the big ecosystem ships that we’re seeing is trying to look into solve that end-to-end. Flextronics is very well-positioned from a components and a hardware perspective.

We have mechanicals. We have PCB and PCBA. We have optical and we have smart power systems in these examples. And you bring all of that to bear, you actually reduce cost for customers, you reduce the number of touches, you reduce the inventory in the pipeline, free net working capital. You are much more competitive in your ability to be able to respond to the market in a faster way so that they in turn can reduce that inventory pipeline and respond to their client based.

But it’s not just about the hardware capabilities, as Mike mentioned, we have invested over the last two years in our services and software to actually round over total product offering and go to market on behalf of our customers. So it’s just so we have the strongest IT systems in the world. We’re able to connect all of the parts of our business and deliver complete visibility to our clients. So they can look at what’s happening with our products to any point in time across the entire world.

Now, lot of companies will try to do this for a number of years. Flextronics believe is first two markets with that solution and we delivered for a number of our top 10 clients that Mike shared with you earlier today.

In addition to that, we’ve invested in our services. What I mean by services, is the actual delivery and installation of the product to the end-user. The reverse logistics and forward logistics management and equally the repair of that product bringing them one partner solutions and leveraging our value.

From the past 15 years, it’s been the traditional model and we are seeing a lot of shifts in this. It’s certainly a piecemeal where some clients will go out to market with a bid for a PCBA or indeed for entire system. Commodity purchasing is often transactional, and then a single node measurement and P&L measurements, where they actually miss value.

We end up with a very complex ecosystem, where they are managing multiple partners and for each of those partners that they have to qualify, monitor and manage the huge stack-up of cost. But not just along there, they also have to consider how much inventory they now have in the pipe.

So when you look at having your mechanicals in a separate factory, your PCBA to your actual box builds, to your repair and your reverse logistics, you’re stacking up inventory all the way along this ecosystem.

If you could imagine what you could do with the supply chain, if you’re able to remove that inventory free of that working capital, and actually get much more efficient. You can equally deliver value in a higher quality product, if you have some engineering changes that go on a new products everyday. You can get a much faster and much more rapid response to enable us.

So there’s a lot of opportunity here and I would suggest there is a lot of value leakage. And the ability of bringing the Flextronics full power to bear for these clients and what that results in tangible measurable value is very high. And I am going to share with you few case studies.

Look at below the telecommunication customer. They went out to the market and you’re probably the top three to four EMS players in the world last year, with the typical general bills on a product test for specific nodes that they requires. We actually have -- we are supplying components to those customers already. So we had a good idea with some intimacy with how their supply chain worked.

So we study that supply chain. We look at the number of touches in that product. How many times, somebody who is taking the board, dropping it into a manufacturing partner, taking the printed circuit board assembly, dropping it into a box build and eventually, it was getting merged with other products and delivers to the markets.

Do you think about all of the last opportunity that’s in the supply chain just in that example alone. We then talk to the client. We actually propose to them that we would basically disregard the RFQ or the request for quotation, the request for bid that they put in front for us and we suggest we will go at this differently.

We gave them an administrative model that demonstrated how their supply chain was actually working today. And we sense with their executive leaders and their Board of Directors and they were shock when I came out with this information that was actually available in the supply chain number one, but equally how much value leakage they had in that supply chain.

So we ended up basically completely redesigning their product and for this product test, their go-to market in their supply chain. We increased the revenue opportunity and growth of Flextronics to $800 million. And we deliver the solution to this customer.

If you think about it, before the engagement they had 29 different nodes for this product test across the globe. That was 29 different movements of products, 29 separate inventory buckets, 29 times, where they have to qualify suppliers, traffic suppliers and traces.

Our control room actually reduced that to nine nodes. But more importantly it was one supplier. It’s one Flextronics. We bring all of the power that Mike talked to earlier from Board drive through box through service there. And it’s one customer there, a one partner they have to deal with. They don’t have to deal with several independent parts of Flextronics we go to market as one. And that’s very powerful.

We were able to reduce our inventory by 40%. Free of substantial working capital. We gave them price reductions on the product end-to-end measured in the range of 7% to 10% depending on the product type. And actually completely changed, how they were able to respond to their client base. There is a lot of the pressure today. You see there is only 5% growth end-to-end market hardware for these clients. So they need to find new ways of working and new way to deliver opportunity.

In the second case study, I want to share with you. This is more about the steady growth rather than a big bank deal. This customer’s has been with us while, we started with system integration and first accuracy in a one product. And over the last number of years, we’re actually built out all of our capability into post solutions. We have an exclusive relationship within today.

We delivered all of their products and services worldwide. And we truly helped them with their compliance and we equally helped them with their RoHS compliance from a worldwide perspective.

Again, high value leveraged. We delivered between 6% and 6.5% cost down for them on year-over-year. We took about 12 partners out of their entire supply chain. So they were able to take those resources inside their own facilities, and as they were growing deploy them elsewhere in the company to sustain the growth as oppose to having to that bandwidth. And clearly, for Flextronics the more operating margins gets healthier. And you’re familiar with the operating margins and services versus boards versus a commodity.

The key takeaways, from an INS perspective is the market growth is at 5% above there rest them challenges. Flextronics has a lot of capability and a lot of power to be able to support a new way of working with these customers in OEMs today.

We have extreme product complexity that continuous to increase at a rapid level, not everybody can play in this space. If you go look at the top five EMS players in the market today and you look at their capability, Flextronics by far has the most complex and depth of breath of experience in this space.

Our end-to-end solutions add high differentiating value and we talked end-to-end. It’s not just about hardware. We talked about end-to-end and solving the IT solution. We talked about solving the services the reverse and forward logistics and the repair. We talked about traceability of product. We talked about margin trends. We talked about delivering all of that value as one solution for client as one Flextronics.

We have the deepest knowledge and expertise in the industry, owing to know how to leverage our full capability and we know how to win as demonstrated in our continuous growth. A fiscal '13, mid range and guidance through the INS business and between 5% and 7%, we saw early around that on a constant currency basis, the market is growing at 5%. However when you adjust through the currency, it’s about 3% and we are predicting to grow this year in the mid range of 5% to 7%, adding an additional $700 million of increased business.

And what’s enabling that for us, is the full power of end-to-end capability. We are number one in the market. We earned 20% of the total available market share. We have the deepest knowledge, the broadest product experience, with the highest number of product engineers in the industry. We are number one in LTE. When you look at the optical switch capability, we’re among the best in the industry and we win large complex, big programs for our large complex science.

Our customer list today, which we talked about Cisco. We talked about our customer list with Intel. So we have both the market leaders and we have the technology leaders. So we have the technology leaders that are bringing out new technologies and we are learning from that and getting ready for the future. And we have the market leaders that are continuously challenge us to deliver more value in newly creative ways.

It’s an exciting time, great opportunity for Flextronics. I think we’re well-positioned to help clients with these big eco ship and big new trends on sourcing happen over the next couple of years. Like to be here. Thank you for your time. I saved your seven minutes, Mike. Thank you very much.

E.C. Sykes

Okay. Good afternoon. I am E.C. Sykes. So Mike, thank you for coming. I would like do the same. I got the chance to meet a number of you before our presentation started today. Look forward to meeting more of you as we get a refreshment time afterwards. And I was standing between you in the break. Understand that, so we will move this forward pretty quickly, so you can get a chance to catch your [breath], right.

I represent and I am President of Industrial and Emerging Industries Group. I’d like to give you a little bit information of the group. But this is a presentation and discussion about growth, where we are at in a marketplace and how we are going to be -- be growing this coming year.

A quick overview, we’re about -- we ended about a $4 billion business. We wanted the complex operational solutions and as far the nature of our type of customers, we will give you some more insight to those. We are in 60 sites.

We have three design centers. We are doing about 50 active programs right now of significant designs for customers. But we are developing their products for them as they get ready taking the market. We have the largest footprint in North America and in Europe, which is important for our customer base. Give you little more information about how we use that as a competitive differentiator and it calls us to drive and win more business.

Our customer base is over a 300 customers that’s have different profile, then which you’ve heard about some of the other businesses that are here, that’s important for us to be able to serve that type of customers, which tend to be our lower revenue structure first in general and give us a higher growth potential right.

So the pie chart then that you’re seeing on the right gives you feel for our diversity of different markets that we serve. I got a slide that will give you some understanding of what makes up these 20 different divisions, right. With the message here is diversity, right.

It’s not a highly concentrated market. It’s very fragmented, right. It’s a market that’s involving and using more and more services that we’ve provide. It’s a market that tends to use more mechanical assembly services and low less electronic services. They tend to be more complex assembly processors. They tend to have more interest in a regional manufacturing solutions, even though our low cost solutions are nice compelling advantage for them and they -- when they make the decisions on awards.

Let’s put the other way. From a growth standpoint, we expect this year to be our growth rate between 10% to 15%. I will give you some visibilities of what make that number up. Last year, we continue to maintain our solid margins.

We shared with you previously, Mike had some calls around what are bookings have look like. And they continue to be solid performance for us in those areas. It is a way of thinking about those for us, outcomes from a bookings to revenue recognitions tends to be longer in the industry average 9 to 18 months.

So our business tends to be more complex to launch. The projects tend to have a long growth product lifecycle and to be more predictable, right. Now, they fluctuate whatever their market conditions are. We have some challenges last year, the semiconductor market get solved in the second part of the year, and the appliance industry still going through a 15-year period of softness they’ve had. But our -- these wins we have back on top of that base business continued to help us go forward.

When we think about the 20 markets, three of those for us this year is new. We continue to expand our marketplaces there, which enables our growth. And that’s part of our ability to lever up to a growth rate that’s higher than the industry average, right. We continue to expand our design teams.

Our customers are more and more interested and are supporting them and helping them in design activities. This is also giving more largest scope, more sophisticated, as we become more and more engaged with their activities to help them get to broadest market.

And we continue to make new investments in our capabilities. And so are more living the market and our ability to bring new services through our customer base, okay. Its gives you a feel for our bookings, see historically they are strong, right. We anticipate those to continue at about this rate going forward to 15% to 20% on range, that supports our growth projections that we given to you earlier. I’ve also gave some visibilities what we think this year’s growth is going to be, we’ve showed you what last year bookings looks like, we’ve talked about the product lifecycles, so you can get some feel, the confidence we have for this year as these bookings set on top of the base business that we have.

I’ve also gave you some insights as to with the profile of this bookings and for us which groups are growing faster than others. The good news in this is it’s a pretty balanced view is there, it’s not one group, its over this dominating our booking activity there, but we’ve get a chance to participate, about equally in large part of these markets.

Right, Mike talked about the structural market, where the GDP is, where our electronics has been, right, and how our industry sets at a rate above that. This is a similar type concept for the industrial market.

Defining the TAM of industrial is difficult, a lot of research papers, don’t define it or, I mean, certain define very differently when they do. I’ll take one source here, you can find another sources, but the concept flow system through them, right. And this particular case is about a $250 billion TAM. It’s a very large market with our CAGR of about 6% to 9% and an increase -- and penetration rate in this point time of about 5% of the market that’s outsourced.

The market is continuing to outsource more and more product to say and it has a significant way to go before does any type of concentration and the outsource is there, so we see this being a market that will continue to outsource more and more, continue to be above whatever the market growth rates are.

If when taken that into consideration, our opportunity for growth with our current customer base is 7% to 10%, or if you think about our 300 customers that we already engaged with, right, just maintaining those programs with them, should give us a growth rate into 7% to 10% area as we participate in their growth in the market.

Now this is one of the areas where the 300 customers become an advantage, because it’s so diversified that if anyone has a stumble or has an activity in the market then very likely we’re working with somebody else in that marketplace, so we can balance out that view. So our portfolio here and customers is very diversified and takes risk out of our numbers for us.

In addition to those numbers, then we look at what levers do we have, so that we can grow the market faster than the structural market growth rate. There is five here. Okay, I’ll throw some details on these five.

First is though our organization, and we -- this is not new for us, and it works and we’ll give you a little bit insight or how it’s effective for us when deals. Next is how we take risks out of our customers business and what that means for them, it’s a pleasure when you go into a customer and they tell you that we are the safe choice for them and that’s working for us as we continue to book deals significantly above market.

Our scale is a competitive advantage. It gives these customers an opportunity to tap into a larger set of resources and they’ll be able to get oblige, so we’ll give you insight how that works.

We talked about our engineering and technology, it’s something that our customers are using more and more, it’s a differentiator for us. And then finally is our markets continue to expand which gives us an opportunity to continue to grow faster with the market rate.

When we think about the market, we bucket into five major groups. Inside of those groups we have the vision that focus on the specific market. So that’s important for us, because when we go to talk to a customer, we are not there to sell them an a la carte menu a things that we do. We go instead to help them understand how we can bring solutions to what their business problems are. To do that you have to understand their market, what problems they are trying to solve, what competitive challenges they have, what they need that we can help them overcome in order to achieve their business objectives.

By being structured in this manner, we get the opportunity to talk to the senior executives and a broad set of companies in a particular market to understand the characteristic of the market and how we need to create solutions that work for them. Our solution is a specialized. They are focused. They are not generic and because of that they bring unique value to our customer set. They give you feel for what some of these [20s] or so divisions look like.

In Energy Management, it includes some products like security, is there. It includes things electrical vehicle chargers. It includes things like LED lighting products that are there which is the fast growing in emerging market for us. It includes smart meters where we are a leading provider in that space, is there, which then helps us connect to the home in the number of different ways, because as we understand the smart meter market and that technologies and how they communicate out in the meters, as well as into the home that we participate in those design activity, which enables us in a number of different areas, right. Mike talked about convergence. Here is another example of that as we participate in one ecosystem crosses over to another or we can help our customers in those spaces, okay.

The second is Life – Appliance & Life Style, so this is a classical appliance industry where we have been a strong participant in for years and years, right. We do design work for that industry, provide electronics and plastic there. But this also includes stuff like gardening the plant, it includes stuff like Nespresso machines, it includes stuff you’re your personal devices like razors and et cetera, that’s inside of this place, it’s one of our fastest growing market for us, as this industry understand how to use our services like better and better, right. So this was a fast growth for us. We are excited about what happening there.

Last year I talked about our SBS group, which is our Special Business Solutions. This is a group for us that focuses on how to create the solution for smaller customers. They make sure that the customer doesn’t get loss in the Flextronics system, right. Because Flextronics being large, there maybe smaller, they won’t understand to make, be comfortable, they don’t get treated like just another, right.

This is important for us and this is one reason we have such a large customer base, because we create that comfort level for them. And this is important for them because when they come into the Flextronics family then they are able to leverage some of the capabilities we have in our scale and I’ll talk to you little bit more about that as we go forward. It’s an important group for us. It helps us market and penetrate a very diverse customer base.

Renewable Energy is an area that we’ve made fantastic penetration in. We’ve focused our efforts in that spot and we’ve been successful particularly in some of the invertor space and as we help some young companies get launch into that space.

We excited about where this market continuous to go, so it got -- some bumps in the road at some places now, long-term prospects were continued to be good. You saw the video Jeannine Sargent here, that’s come on board to help us continue to grow. We are investing in this area, right.

And the final spot is Equipment & Automation, you recognize the red box unit that’s on the bottom there. So it’s a product that we participated and we built all those units in our North Carolina facility.

There is a lot of other equipment and automated products are there, this tends to be large, big deal. We make a lot of products for the semiconductor industry for instance here in the clean rooms that can go directly into the fab as they leave our factory. So this is significant size and scale, technical complexity is unique, sets us apart is the differentiator in this marketplace.

In order, when we think about growth, expanding our marketplace is an important element of that. And so as these leaders look at their particular markets, they look at what adjacencies they have, so that they can then expand. And so we continue to expand into adjacent inside of those five major sectors that we’ve talked about earlier, right.

You see here we’ve taken it from seven to 20 at this point. You should expect it to continue this march of expanding our total available market as we reach into new areas and find new markets where our capabilities fit well with our business objectives.

We’ve also significantly invested in innovating new products or bringing new technologies to new regions of the world, right. And so this may mean that we’ve opened up new machining facilities and low cost centers that weren’t there before. This may mean that we’ve invested in some software in order to create new self-service in key op solutions and this low end innovation will continue for us, as we look to differentiate ourselves from our competitors and so that when we bring value to the customer, they say, we are the solution that they want.

So our scale creates an incredible competitive advantage, because we have to leverage of the $30 billion company, we gets the opportunity to go into a customer and help them understand how they can leverage this for them, right. And so that maybe how they get access to our materials and pricing or maybe how they get access to our footprint, so they can take that from North America to Eastern Europe or to a low cost where they were fits well for their business model.

Our process tools are even because of the size of scale we have, we have some fantastic top talent, we can help them architect with their supply chain to look like and they can use these assets on a variable cost structure.

Flex is a stable, solid, financially well company and so when our customers look at us, they’ve got confidence that we’ll be able to service their needs in that space. We also have a reputation of being a great service provider. We have fantastic operations that continue to get better and drive cost out for them, right.

We are experienced in launching new products. We’ve got a global scale that’s well architected in that space and so when they look at Flextronics they see a less risky solution than they would if they look at some other people. And so because of that less risk, right, it’s easy for them to make the selection for us, and as I mentioned, right, it’s good for them to hear from them that we are the safe choice for them to make, right.

Advance Engineering and Technology support, so it’s important for us to be able to help our customers get their product to markets. At times we are the expertise in certain areas, Mikes talked about wireless convergence and how we see that happen in some of the Nespresso machines that happen to be in this market, which is, we’re having that same conversation in other spaces.

Earlier this week, I talked to some of the people that was in the thermal solar space that are looking rather than pulling cable in the large fields, would like their models to be able the top wirelessly and take that cost out of the system. So we provide design services to help take that same type of wireless capabilities we maybe using in some other markets, we are now take into this market and help them achieve their business objective to take costs out of their products.

Okay. So how to think about our business, moving forward, right. Think about its 10% to 15% growth rate. It’s made of two elements. One is the structural market that grow at 7% to 10% and our customer base should move up with the structural market.

On top of that we’ve got some competitive differentiators that allows us to grow faster than the market, these have been demonstrated for us to work in the past, they are five of them that we noted before. We are confident in those theses and where our position are in those places to help us continue to move forward, right. It’s for us to achieve our 10% to 15% growth rate.

All right. So, thank you, thank you for time, I think, now we’ve got a time for 10-minute break. At the end of that period of time we’ll continue with the presentation. Thank you.

Paul Humphries

So good afternoon, ladies and gentlemen. My name is Paul Humphries. I am President of our High Reliability Solutions Group and I’m going to talk to you today about that business. And I hope at the end of the presentation, you’re going to be as excited about this business as we are.

So our High Reliability Solutions Group comprises three businesses. It comprises of medical business, our automotive business and our aerospace and defense business. And I’ll go in a little bit more detail on those businesses as you go through the presentation. So we really think this is a very, very strong business.

We are number one today in both medical and automotive and we’re quickly emerging in A&D. We suddenly got a lot of traction in the aerospace and defense business albeit that business today, it’s only around $100 million. We think it’s got huge potential.

We’re going at a compound annual growth rate in excess of 20%. That’s been growth rate for the past two years and we expect to see similar growth levels into the future. The way that we’re go into market particularly with aerospace and defense but also with medical and automotive, it’s not just selling the capabilities we have within those respective business units, we’re also selling the overall capabilities of Flextronics.

So an example, when we went through a major Tier 1 OEM in the aerospace and defenses business, doing $50 million to $60 million worth of A&D business is a tough sell. So we talk about capability we have in providing products under strict government regulations and strict quality controls. We talked about the capability we have in complex electro-mechanical assemblies.

We talked a lot about the capability we have in products and certain product introduction and we talked about the other businesses of Flextronics that we can bring the best that have to provide a solution for that customer that were second to none and we were really, really surprised at how that resonated with our customer, not leading onto some further discussions which we expect to lead to a piece of decent business.

We have the leading design services capability in all those industries. We have around 550 engineers. I’ll talk about that but we will focus on not just providing design contact, industrial design and full design, we’re also doing design for manufacturing ability, design for cost and providing those design services to our customer which we think is a competitive advantage.

And we also have the leading quality and management system in the industry. And we’re getting that accolade from the customers and our customers are actually asking us to share with them what we’re doing in our quality system to help to improve that internal quality.

Some key facts of our High Reliability Solutions, so what about 10%, projected to be around 10% of Flextronics revenue in 2013, that’s from a number that few years ago was down 3%. So we’re growing at a pretty quick rate. Fiscal 2012 revenue was about $2.4 billion, about 24% of that is in automotive electronics. 19% is in car connectivity, 34% in disposables and medical devices and 19% in medical equipment and a small percent as I talked about in the aerospace and defense business but with good growth potential.

We have around 15 dedicated sites. These sites are specifically designed to manufacture products for aerospace for automotive or for medical. And they have the quality system, the management systems, the controls in place to assure that we can meet the high reliability requirements of those industries.

Within Flex, we have around 2000 design engineers and we are actually pulling on those engineers constantly. So we are not just leveraging the engineers within our own business, we’re leveraging the engineers across Flextronics, who recently had an aerospace customer at our site in [Ottawa] where we had 15 engineers from across the whole world sharing with those customers, what our capabilities are but we also have 560 people in our design centers in aerospace, defense and medical and automotive but are specifically working with those customers on that application.

We support all industry sectors. So we have the broadest portfolio in this industry -- EMS companies that are out there. We have a customer base, that’s fairly broadly, of 145 customers across the few segments and again as I mentioned, we’re number one in automotive and the medical.

We’ve seen a compound annual growth rate since 2010 of around 23%, that’s across all the businesses. It’s higher in some than in others and we’re expecting 10% to 50% as we go into FY ’13. Going into FY ‘14, we expect that to expanding further but we’re looking at 24% growth 2011 to 2012.

We have solid operating margins and operating margins that were improving in those businesses. We have $600 million that we acquired in new bookings and those are bookings that will take anywhere from 24 months to 36 months or from 12 to 36 months to actually hit the revenue line but really solid bookings in all those businesses.

We’ve acquired 60 new customers, all of which are in aerospace and defense. So we’re starting to penetrate some of the larger Tier 1s in the aerospace and defense industry. We’ve been beating up our talent both in automotive and aerospace and defense. We’ve recently appointed a new president for our automotive business and we brought in several other key talents in customer facing roles and technical roles to help to beef up our capability and complements that will take this business forward.

We recently completed the stellar acquisition. I’m sure you heard about that. That was a business in Valencia, California, that’s focussed on microelectronics for both medical and aerospace and defense. We think that acquisition is a terrific advantage to us because there’s some new capabilities and new technologies. So we can bring not just to -- to those two markets but also to Flextronics as a whole.

And then we had a key medical equipment startup in Mexico. That’s a first time we’ll be making medical equipment in Mexico. That was a transfer from a customer in North America. We had four products that we transferred in record time. We did that in 17 months.

The customer was expecting us to take two and two and the half years to do just one product. And we did four products in 17 months. So that launch went flawlessly and has given us tremendously a raise and a greater relationship with our customer to build on going forward.

In terms of the market, again as you see that within industrial market, really difficult to define what the total available market is in HRS. But even conservatively, just looking at the EMS workers available, you have around $105 billion in automotive electronics. That’s purely in electronics.

We have over $100 billion in medical devices, disposables and equipment. And that’s just the EMS business. There is a lot of other businesses today is still in-sourced that we think it’s still available for potentially outsourcing in the future.

So the market potential is even greater than that and we have around $61 billion in aerospace and defense, again in electronics with a total market in just defense alone of about $600 billion and again, we’re seeing a lot more of interest in customers to outsource with that current in-sourcing.

So the key point here is the market, it’s significance is growing and we’re really well positioned to take advantage of it. We’ve been growing faster than the compound annual growth rate, substantially faster than the compound annual growth rates of the industry and we expect lot of that to continue.

So looking a little bit more deeply at the medical business, so we’re looking at just medical devices. This is just some stats on medical devices, some info we’ve had, sales of the market growing from around $30 billion to $96 billion and that’s the market for EMS outsourcing. That’s not the market in total. That’s the market that’s available to us.

So we’re seeing fairly significant growth, just truly in medical devices and one area that we’re focussing on going forward is in Europe and you’re also seeing significant growth going from around $6.87 billion to $21 billion. That’s between 2010, 2021. So in the market it’s growing and we’re really well positioned to take advantage of that.

We have three areas that we focus on, consumer health and drug delivery. We do a lot of blood glucose meters of companies like J&J. We make blood coagulation test. We do a lot around electro-mechanical drug delivery devices for insulin, for human growth hormones and for pain relief, are also getting into the new markets for aesthetic skin care and hair removal. That’s the market that’s growing and you’ve also got a pretty strong position in that and see huge potential in that going forward.

On the disposable side, we make everything from heart catheters. We have wound managements, endoscopic instrumentation, disposable dental drills. So this is a pretty broad base business again. Again, this is growing for us. We’re seeing potential to continue to grow in this business.

We’re also looking at doing more high-end in disposables. We’re actually seeing convergence as other people have talked about. We’re getting electronics and mechanicals coming together. We think we’re really well positioned for that.

And then in medical equipment, we’re making things like mass spectrometry. We’re making high pressure liquid chromatography. We’re making hospital beds, MRI, CAT scans. This market has been growing for us around 38% the last couple of years. We see that continuing to grow at a similar rate. So we see huge potential in this business going forward.

If you look just at medical, compound annual growth rate over the last four years has been 21%. As you can see in FY ‘10, we had a negative 6% that we grew by 32% and 26% respectively in FY ‘11 and FY ‘12. We’re seeing a little bit of a slow down in FY ‘13. So we’re seeing growth of around 6.5% but we think that’s just one year.

Beyond that, we’re expecting to see double-digit growth once again. We’ve been focused on bookings and on launching new products and as we go forward, we see that new bookings coming into play in FY ‘14 and beyond.

Let’s talk a little bit about the Stellar acquisition. This is an acquisition I said where we gained microelectronics capability, new product capability and implantables. We provide products on neuro modulation, which is an implantable that goes into the back and actually impacts the spine. We have deep brain stimulation.

We also have cochlear implant systems and we’re also doing sensors and monitors. So this is a capability that we think can play very, very well into the medical market, already plays well into the aerospace and defense markets for companies making things like UAVs and communications equipment but again we believe this is a capability who can leverage across the whole of Flextronics.

So in terms of our medical business, our growth strategy is to expand our existing customer base to build on our existing relationships on the continuing outsourcing trend and we see no reason why we can’t continue to capitalize on that in a really good way.

To increase the focus on the European customer base and our share that we’re seeing strong growth in Europe, so capitalizing on that. We’re already beefing up our engineering and selling resources in Europe to take advantage of that market, continue to leverage our vertical integration offerings.

We’re seeing much more of a need for high precision plastics. We actually see some of the plastics companies are getting into the market and that and area where we already have expertise that we need to build on. So we think that can leverage for more high tech medical devices as well as disposable products and also seeing increasing automation.

One because of volume requirements but also to continue to improve qualities of products. And we have significant automation capabilities today that we can leverage as well as expand on. And then continuing as I’ve already talked about leveraging new capabilities from not only the Stellar acquisition but we expect to do niche acquisitions going forward.

So in automotive, again we’re in three major businesses. We’re in vehicle electronics, we’re in connectivity and we’re in energy management. In automotive electronics, we’re seeing compound annual growth rates of around 10% to 11% in that industry.

Electronics is growing faster than the growth in the automotive industry in general and we’re well positioned to capitalize that. Again we have the broadest product portfolio of any EMS company in the industry. We’re doing things like control modules of powertrain or engines. We’re also doing electric power steering.

We’re seeing a shift away from hydraulic steering to electric steering and we’re really capitalizing on that opportunity. We’re doing a lot on power controls, lifts gates, sunroofs and for tail gates. That again is a market increasing not just in North America but in other areas of the world.

And then things like remote antenna and ambient lighting. We’re focussing less on what we call dome lighting but there is a significant market for ambient lighting. It’s part of the personalization of vehicle. It’s actually a good sell for the younger generation. They like to move like in the car and it’s not only helping us to grow but its also selling vehicles from our customers and providing future growth potential.

On a connectivity side, we make the SYNC product of Ford today. That’s a great customer relationship. For us, the great products are showing great growth potential. We’re also doing a lot of modular concepts.

We’re making USB and iPod connectivity. We’re doing bluetooth and WiFi. We’re doing voice controls. We’re actually working with some customers in Germany today on developing complete head units where we’re expecting to see production volumes and those products in around 2015 and 2016. But again, this is a market, that has significant growth and we’re right in the middle of it.

And then on the energy management side, obviously, there is a move towards hybrid and actually vehicles and that’s one area, where we’re involved in but you’re also seeing much more of a focus on improving the performance in the efficiency of combustion engines, diesel engines, gas engines as well as powertrain.

And so we’re not saying in e-vehicle and the hybrid space with things like battery management, recuperation, inverters, DC to DC converters. So we’re also playing in other areas such as exhaust management and transmission modules and in electric bikes. We’re actually making electric bikes for Brammo.

We’re gaining lot of experience in that area and that’s an area that we intend to capitalize on going forward. So again, we’re in the three strongest growth areas and we’re actually capitalizing well on our capabilities in that area.

From a revenue growth in automotive, again we saw decline in revenue, FY ‘09 to FY ‘10, 48% growth in FY ‘11, 38% growth in FY ‘12, 37.2% compound annual growth. Again we expect to see growth in 2013 in 18% to 20% range. So again we continue to see healthy growth and again beyond that we are pretty confident we can maintain double digit growth going forward.

There’s just a slide that reflects what I was talking about in terms of the growth in electronics, so whether it’s in infotainment electronics, safety electronics, which could be electric power steering as an example, powertrain electronics or instrumentation electronics are all growing faster than the market and we’re actually playing in every one of those places.

And this is another area that we continue to focus on. I mean, we’re seeing growth in the market overall. We’re talking about increasing the number of units from 79 million to 91 million units over the next few several years and a lot of that growth is coming out of Asia and in particular, China.

Asia represents currently around 49% of the market growing to 50%. The key focus for us going forward is not just capitalizing on the growth that we’re seeing in North America and even in Europe, we’re positioned with a high-end motor manufacturers. So even despite the current economic issues in Europe, we are still seeing growth amongst our European customers, but we see the significant growth potential in China, in India and in Brazil going forward, and we are starting to focus more effort on those markets.

For our growth strategy for automotive is to focus on products and technologies with the highest growth potential is to expand our existing outsource base, utilizing on global capabilities and one another things I’ll talk to here, we had a discussion with two of the top North American OEMs. And previously we’ve been saying ourselves as an $800 million automotive business.

But we went in and we talked about $30 billion electronics company with all of the brac of capabilities and services that Flextronics has to offer and frankly it changed the nature of the conservation. And that started to open avenues and opportunities for us that previously didn’t exist.

So we slightly changed the way we are going to market and we think that’s going to provide even more growth potential going forward. And then, finally increasing our focus on high growth geographies in China, in India and in Brazil.

And finally, A&D, A&D as I mentioned is a small business today. It was $50 million last year, $55 million, we expect to double it to around $100 million for FY’13. But still relatively small in Flextronics, so we see a significant growth potential. We are playing again in three years in defense, in commercial, civil aviation and in homeland security.

The primary focus today is around electronics, although we do see opportunity from mechanicals and I’m working with the industrial group, with EC Group to really capitalize on our precision and machining competencies and we really starting to gain some traction there. But we are talking to all of the top Tier 1 A&D companies. We have access to the most senior people. We are getting a lot of traction and we expect to see significant growth in this business going forward.

The key for us is, we do this is really making that we secure -- making sure we secure one anchor customer in each market and that’s really what we are doing. We are focusing on winning with the winners and selecting the companies in that market that we -- I think provides the greatest growth potential and also provides the greatest opportunity for us to leverage the capabilities that we have.

And also leverage the acquisitions I just talk about what we have with Stellar and Microelectronics. We’ve met with several of the Stellar customers and talked to them about our plans for Stellar going forward, that’s created a lot of excitement. Micro’s customers, they are very keen to talk to us about further opportunity. So we think the Stellar acquisition is going to play really well into our growth strategy for the A&D market.

And then finally is capitalizing on our vertical integration capabilities, whether it’s around plastics or mechanical as I talked about, whether it’s around power, there is a strong play in every one of those in many respects into the A&D market. And again, we are leveraging that as we talk to customers and talk about the potential for growth for the future.

As we start to think about the key outsourcing drivers for the various industries we are in, oops, sorry. So we are seeing a lot of trends in medical that are increasing the potential for outsourcing.

The medical companies whether it’s the drug companies or drug delivery companies, or the medical device companies are under increasing cost pressure. We have seen the impact of the new medical. Tax is coming out -- medical device tax, the excise tax that will increase their costs by 2.3%. So that on top of pressures that they are seeing, elsewhere instead of trying to contain healthcare costs in the U.S. that in itself is providing opportunity for us.

We’ve got the increase in medical devices. The population over 65 is increasing substantially. We are seeing a lot more growth in those markets than we’ve seen perviously. We are also seeing a lot more growth in home healthcare products. And again, we are really involved in those markets and supporting our customers for growth potential there.

And then there is the emerging markets. There is a significant growth potential, again in India, in Brazil and China. And today only 20% of our volume is in Europe. So we see significant opportunity to capitalize on the continued growth in Europe and as I’ve said we are already beeping resources up there.

And then again leveraging on Flextronics capabilities around RF, around wireless, we are seeing a lot of devices moving to the home are connected to the hospital or connected to the doctor, where you can sent data wirelessly remotely to the doctor, they can do the analysis at a distance helps to reduce healthcare costs. Today, this market is emerging but for the future, we think this has huge, huge potential and again, place at the competencies that we have.

The next area is in automotive. Again, I talked about personalization whether it’s ambient like thing, whether it seems like sunroofs, whether it’s some driver assistance, initiatives that are going on, this is definitely an area of growth there. We are seeing much more personalization taking place, the energy management arena that I talked about whether it’s in terms of EV goes hybrids or improving efficiency of conventional vehicles.

Car connectivity is a huge growth potential for us, emerging markets and then driver assistance and driver safety, we think this has huge potential. Again, we are seeing a lot of things like side detection, rear detection, front detection. You are seeing park assists and those are areas where we have capabilities in electronics, we brought on our customers today.

And then finally, in aerospace and defense. There’s some interesting trends, if you look at commercial and civil aviation, the market is increasing. Boeing and airbus volumes are increasing substantially. There is anticipation build by 2021 36,000 new planes for commercial and civil aviation, and the markets not only in large scale jets, we are also seeing an increase in regional jets. You have the emergence of Embraer and the growth that we are seeing with Embraer and we’re talking to them about some services business. We are talking to COMAC and AVIC in China about C919. So we are not only positioned for growth in North America and Europe, but also in the expanding markets worldwide.

Although, we are seeing defense budget cuts in the U.S., we actually see that as an opportunity for us, that puts increasing cost pressure on the OEMs and the Tier 1s. They are already seeing the impact of some of the budget cuts. They are already seeing some headcount reductions.

A lot of the products in defense industry can be moved offshore. They are already in high cost regions, they’ve got high legacy labor costs, they have high SG&A and corporate expense. And so the only real way for them to lever is their cost base and to gain efficiencies is to actually look at outsourcing and we think that has a huge growth potential for us.

And we also start looking outside of North American, we start looking into other areas of the world whether it’s Israel, China, India, United Arab Emirates. We are seeing growth rates in the 20% plus in defense spending and so we are looking at how we capitalize on that.

There is a need to transform cost structures and there is need to transform cost structures across the whole industry and we think we are really, really well-positioned to do that. If you think of our value proposition, we’ve been transforming cost structures of companies and industries for 20 years, and bringing those resources and those capabilities to bear in aerospace and defense, we think is a great advantage.

And then finally, as new markets expand as offset requirements, as the U.S. win new business overseas and they spend to focus their sales opportunities outside of the U.S. to offset the defense cuts, often times there is an expectation that you need to then manufacture in those regions. The governments have regulations about that and with our global capability we are in 30 different countries. We have certification in many of those countries. We are really well-positioned to capitalize on that growth also.

So, again, reinforcing in our world class quality and regulatory systems, are really well-positioned to support all those industries. Our global supply chain expertise within our own business segments across the whole of Flextronics is significant. We have extensive design offerings, 2000 engineers in Flex, 560 within HRS, where we can provide not only concept design but also we can do design for manufacturability, design for costs et cetera, our vertical integration capabilities and then our broad global reach. We believe these trends all play to real potential growth that we see in the three markets.

And then finally, just summarizing our strategy for growth. It’s to select the right markets, select the right customers to win with the winners, is to exploit Flextronic’s overall capabilities and vertical integration, to use our capabilities in High Reliability Manufacturing, use the competency around our standardized global management system and quality systems to ensure the customers that we can give them the highest-quality and most reliable products in the industry today. And then finally to use the acquisitions that we've done to not only build competence but also to build credibility.

Thank you very much. And I would like to introduce Mike Dennison who I believe is following me. Thank you.

Mike Dennison

Good afternoon. So, I’m glad to see that we have so many people here to see HVS specifically, because I was just afraid that maybe you are here to wait for Paul Read’s presentation next. But nonetheless I want to go through some things on HVS.

We -- Mike talked a lot about HVS today and where we are going with HVS, and how it’s differentiated, how we are redefining what the HVS purpose and objective is. I think it’s really important that we go back and we revisit what that means.

HVS is 30% of Flextronics, but it’s a really important 30%. So, I want to walk through with you what that transformation looks like, what we are doing to redefine who we are and how we are going to attack that space?

Very important for us is that we balance our customer base. So if you look at HVS evolved, it had a tendency to be the top 10 or 20 customers in the world, usually specifically in standard historical mobile consumer computing type applications. And when you had that kind of environment, you had very large customers, typically high volatility, high asset utilization and when things went right or when the market change or that customer’s strategy moved, the impact was huge.

So, one of the most important things for us is to ensure that we are driving that balance portfolio across balanced services and solutions. So it’s more than just making sure you’ve got a broad customer base, that’s also making sure that you are providing the right services and solutions. So I’m going to spend some time on that today, make sure you understand what that looks like.

If you go back and you talk about the typical consumer space, consumer computing mobile. They are those who drive massive volume. There are our competitors to drive most of the volume in the world in this space, mainly Taiwanese.

When you look at that Taiwanese bundle, Mike mentioned this, that Taiwanese bundle of competitors generates about 1% of profit, maybe 1.5%. It’s a really difficult place to get your costs low enough on a consistent basis to keep those customers successful and drive the volume and return on your assets in that business.

So when you’ve got that happening and pushing down really from the top that commoditization, we need to go from the bottom and push it back up. We need to find the winners in the space, who are the people that are going against that trend and creating innovative products that we can be a part of, people that we can partner with in delivering real services. And when I mean services, it’s not just about picking the winners and then building the big factory in China and doing S&T.

It’s really about adding end-to-end services. It’s about components and verticals, and making sure the value you bring to that customer is well beyond just assembly. It might have some assembly, but in a lot of cases that assembly probably isn’t in China. It’s enabling them to enter in emerging market where we add additional value. So when we look at this, we have to balance that whole idea of the cost pressure and commodization versus the value add service that can bring the real winners in this space.

When you look at us, as we stand today, as Mike said we are about 30% of the company in FY’13, that’s the number that’s reduced of course from the prior year. We think that’s a healthy number. And you can see that that number today is still based basically, it’s about 50% mobility and then the other two sections being consumer and computing. So when we look at those numbers, we know that that’s a reasonable balance. But that model is changing and I’m going to talk about what that looks like going forward.

One of the things that Mike commented on is kind of our industry ranking and we had the slide that said, we used to be number two in MySpace. And now today have fallen to number four. You know what, that’s a really good thing.

So we are completely okay with the message that I’m not going to try to achieve number one or even retain number two because the most important thing to me isn’t market share at all. It’s really about how do I go convince those customers that I want to go attract, that’s the services I’m providing add enough value to make a sustainable long-term partnership.

So I really much more focused on what customers I’m selecting and what services I’m adding. When you think about it that way and you look back to where we were in 2007, it was low cost assembly in my world.

HVS was low cost assembly. We worked really hard to go establish large factories and drive as much volume as fast as possible down the line, drive the revenue up, make sure that we were getting as much market share as we could get in that model I had very little opportunity to add what I would call non-commoditized value.

And if you are in that model and you are in that space, it’s just a really tough place to consistently win. And when you win you are wining revenue but not necessarily as we said before with the ODM, not winning margins. So as you see that start to migrate across the 2012 and then for sure into 2013, you really see how we are taking this model forward.

This is now a model more about the services, those other things that we do in these customers and these partnerships then just assembly. In a lot of cases, it has assembly as well and that’s okay, but it’s balanced. Having a balanced portfolio across the balance customer mix where you are going from 10 to 20 customers, driving $10 billion or $11 billion, the 50 plus customers driving $6 billion to $7 billion, a different world, it’s a very different world.

So what does that do our business? When you take a look at where we’ve embedded and where we are going, you see a significant decline in FY’13 expectations. A lot of that’s attributed to a couple of things that you are very familiar with.

In 2012 -- in fiscal year 2012, we had a big ODM business. We’ve successfully and efficiently executed ourselves from that business for the right reasons. That business did not generate consistent sustainable process.

In addition to that, we talked a lot about our relationship with RIM. RIM is going through a lot of changes. On the last earnings call, Mike spent considerable time talking about that.

Our relationship with RIM has been a downside as their business changes and modifies. We are okay with that. They are a great partner of ours. We work very hard to make sure that the solutions we have in place are solutions that make sense and when they don’t make sense, we don’t just chase the buck.

When you do that you are not going to get a buck back. So we’re really focused on making sure those businesses are adjusted for where we’re going. The good news in 2012, when all this is happening, it was pretty much impossible for me to hit the target profit performance set by the company for my division -- for this division.

But the better news is 2013 with real news in 2013. We are on target to do that. When you take a look at, what we’ve already done in 2012 on ODM side. And what we’ve already done in our relationship with RIM to help de-risk that portfolio, that footprint.

We’re on target to get where we need to go. So in my mind, we’ve made that turn, and Mike talked, a lot about that. We’ve made that turn not about how we go forward from here. And we go forward, we’ve been through a different world.

One of the things I want to make sure, I am clear about that, we are clear about. This business is a growth business for us. It’s not going to die and go away or kicking smaller. It’s going to go out. It’s a huge TAM. That market is so big you have to address it. It’s how you address it is so important.

So we’re going to continue to grow here but we’re going to grow in a very sustainable way. We’re going to grow at 5% to 10% a year. We are going to pick the right customers and we are going to pick the right services.

When you look at our broad portfolio today, and we have seen a lot of portfolios from a different, presenting these segments that we are running. To look at this and it sounds pretty standard. It is what is -- you get this and you get to usual right. It’s computing, it’s mobile, it’s consumer. It has its own beauty, either a fixed access point or a mobile access point. And the way that we look at the world is this entire bundle is becoming the mobility access point or the access point in any case to a cloud.

Caroline talks about the cloud and how her business is build and make sure we’re supporting the cloud effectively. When she is supporting that cloud, I am looking at the access point. Where we’re going to get that content in the cloud to us, and that is a broad and growing market all the time. And it’s growing in more ways and adjust their standard concepts on a tablet or smartphone or a PC, and so we’re going to talk about, where we go from here.

That’s exactly the customer base today. It also has the home access, which for sure is part of accessing the cloud, in fact accessing that cloud from your home, which is a very important aspect and a very big business and very diversified business.

As you expand beyond that bundle, you start to look at customers that are coming into the market and these are not necessarily new startup company. These are major, major brand who are entering the hardware space to make sure their ecosystems, to make sure their cloud and the cloud content is getting delivered to the consumer in the way they want.

And so when you hear Facebook talking about a new phone, Facebook is not a hardware company, hasn’t been historically. Google buying Motorola, not a hardware company. Other company is out in that space that are absolutely looking at how they can take their product technology and involve it into a content access point in this system, in this ecosystem.

In order to do that, we have to take that business differently. In order to think about those customers, they are coming in without this huge infrastructure of engineering, operations, supply chain, end-to-end services meaning back-end services for their product. They need us in a much more valuable way, as a partner and just saying how much can you build up for in China. When you build that model, which reflects that new blended look in terms of our business revenue.

You start to see, where we can really impact those customers early on and that’s becoming a very, very core part of our strategy going forward. And we are finding that it has a huge impact. These customers are embracing us very quickly. When we say don’t worry about it. Everything from your concept to my manufacturing, my services we can deliver, but you don’t need to go do all that, we will take care of it and we will give you the most efficient system in the world.

A good example of one of these spaces, which is very interesting, because two years ago we stand on the stage and talk about something like sports and fitness, we talk about things that we are aware and say, this is consumer technology. It’s kind of crazy thing. But in a span of less than two years, frankly less than a year, customers were entering this space and asking for our support to help get those product that they are not that familiar with.

So they know they need to have into manufacturing, into solutions, into an ecosystem. And so it gives us an opportunity to really impacting that you would historically think would be in the space.

Now in lot of cases, these aren’t $1 billion deals. These aren’t the deals that I was talking about before in 2007. These deals are $100 million -- $200 million, but they are north to the corporate average NAV. Everyone of the deals we have done, the last five deals we’ve done and less than $200 million in total revenue on an individual basis, all of them over 4% LTE.

So I am not suggesting that the HVS segment will deliver on an ongoing basis beyond the target that Paul Read was talking about and what we’ve said. So I am suggesting is, it balances the business very well. And makes that much more sustainable and much more predictable for us to communicate that deal.

How do you do that? You guys have seen probably in the past, let me turn to you lifecycle slide, where we talk about taking products from concepts to manufacturing and beyond. This has become extremely critical in our world. If I don’t have this capability, if we can do this in HVS, we’re unable to engage those customers at the concepts stage, and show them way, show them a path to get from there to manufacturing anywhere in the world may be China, but also may be Brazil or Europe or Mexico or somewhere else.

We have to have these types of capability. So we’re very focused on everything from the engineering standpoint, mechanical engineering, technical support, technical services, manufacture ability of products, a lot of these customers come with a great idea, but some manufacturable. So they need a partner they can take that from a great idea to something that absolutely yield, that yields off the line, on time to the market, delivers what the customer is looking for.

What does that look like? In a very simple message but a very complex slide, what I just said is we are living away from that low cost China play not completely. We still have manufacturing in China. I still have a lot of business in China.

So we’re moving away from that as a standalone business offerings to a much more for suite of services that we want to provide to our customers. And we’re finding the new customers, the new business, are absolutely engaging in this way with us, which is really important.

So when we talked about that, couple of slide just on what that looks likes and a lot of that is mechanical, design support, a lot of that is our technical services, making sure that the products can test, making sure the products can go down the line correctly, making sure that mechanical piece of that product has been a work, it’s to have the right requirements from the quality perspective et cetera.

This takes a really, really experienced, really capable and really deep engineering services organization. In lot of these cases, I was back in the last slide, I would have -- I should have explain it there. We’re leveraging really the asset of the company. Business is about HVS going out and building everyone of new style.

This is about us reaching across all of our partnerships in the company and saying hey, you’ve got that technology, I need that. I need to borrow some of that, so I can bring to these customers.

And when we marry all that up together, it becomes very compelling because the other thing that’s happening is the conversions of all these spaces. Mike talked about tier wireless and express those situations. That just because we happen to be in case where that customer and HVS customer of tier wireless interact with lots of our segments and lots of our customer basis. And we can help connect those dots and make sure if that’s working the way it should, that’s bringing value.

So, and other thing that we’ve done recently, and we think that this is massively important. When you read all the articles from all the company, big companies in the bay area, we start looking at what they need in Silicon Valley versus what they need in inland China, and what they need in Hungary and Ukraine.

What they want is the ability to develop in their own move sandboxes, if you will, in the lab environment with high security, high secrecy, help us so they can go and really do it their way, with our technology, our engineers, our assets, our equipment and ensure that just down the road from their office, they can create innovative product.

That is a massive game changer. This is so important that they get the market quickly and efficiently. And they really been able to test that out, study out whether that product is making it to a level they can be produce consistently. A lot of times just lying back and forth, the China or somewhere else trying to run this different test and it’s just a very difficult thing to do for a lots of different reasons.

So we believe this is a big differentiator for us. Customers love this. This is getting huge amount of support attraction from the customer. So well, this alone, help us drive necessarily big revenue. It drives manufacturing. It drives verticals. It drives services. It drives a much more complete partnership and just building products in China.

I want to take a couple of minutes and talk about PC. So I think that overwriting opinion in this room to the PC business is a bad business. Its low margin. It’s ODM, doesn’t make any money. We spend a lot of money investing in it, high assets and just not that compelling.

And I want to make sure you understand that we love the PC business. We are completely committed to the PC business. I am not going to go -- we are not going to go in OEM and PC. So we’re for sure committed to the space, in components, in services, in different types of regional manufacturing like Brazil, we add tons of value to this partnership.

And these partnerships are growing all the time. And as they grow a depth of our service offering increases and depth of relationship get better. So instead of me talking about the awards that we’ve won with Lenovo and instead of me kind of adding our own awareness to what this is. But I’d like to do is just switch to a video real quick, and just what you see from their eyes, the importance of this relationship what is brought to them from a services perspective. So can you roll the video?


So we think that’s pretty cool and we know this is the really cool thing about that, that wasn’t Flex inventing a customer to go create a video. That was a customer creating a video to go, approve their supply chain products through their partnership with Flex to their customer base.

When Lenovo well made this video for us, we’re actually for more than us, it was a really, really strong rope for the solution services we put in place for them in Europe. We’ve really, really believe in that relationship and that’s a PC relationship. So we’re just to reiterate very committed to PC.

So just in closing, I want to talk about a couple of other things. For sure, it’s about taking the winners. They have to continue to make sure the customers we’re aligned with and the customers in the future and the customers who see the value in a total Flex solutions, the customers who are not just trying to drive revenue through low cost assembly, the customers are looking our global management system into the value on that.

And ultimately, sorry, I guess I’m showing in test slides, so ultimately we want to just make sure that these relationships are across the balance customer base, diversified service offerings and really add the value our customers are looking for, which allow us to basically drive sustainable and predictable financial results. That’s HVS, we are committed to it. Thanks.

I didn’t do the rest of my job. So let me invite Paul Read on stage to talk about money.

Paul Read

And I don’t have a video. Sorry. I have some fun stuff, so this is the last presentation of the day and then we are going to move up to Q&A. So, I only have a few slides, but most important ones of course.

Okay. This is way we look at our business model financially. We worked on four separate pieces, reduced volatility, increased predictability, margin expansion, leading to shareholder value creation. I’m going to walk into each step. Just a couple of slides on each step to show you the progress we’ve made and the outlook that we have.

So reduced volatility, this is key. Mike talked about that quite a bit just a moment ago. If we want more predictability in our business, we have to have a mix of portfolio of businesses that have reduced volatility.

If we start with -- this is a slide that brings to give us all of the businesses, all the business solutions that we’ve seen in the prior presentations. You can see it’s a vast array of solutions out there in the markets for our customers.

IEI is roughly 15% of our business and is growing 10% to 15%, great piece of business. HRS, a little small at 10% but it’s growing significantly 10% to 15% as well. High velocity, we’ve got down to 30% and INS at 45%, and then all the subgroups below that.

So we’ve worked really hard in a very disciplined fashion to arrive at this, what we call a 70-30 mix of low volume high mix business and high volume low mix business. And it’s that business profile for us that we think will lead to increased predictability. But we think we have a broadest set of offerings now in the industry today that allows solutions for our customers to increase their value and increase their competitiveness.

Another part of reducing volatility is actually partnering with the right customers and having the right customer mix. You can see our top 10 customers back in ’07 roughly 75%.

Today, and first of all, going forward in ’13 this year, we have roughly 45% top 10 customers. If we look back at our top 10 in 2007, we had three customers in the low volume high mix business, Ericsson, Nortel and Xerox, and so therefore, we were overweight in our high velocity business. And hence, we had a mix of 60% high velocity business, 40% non-high velocity business.

If you look at this year, it’s very different. Only three of those customers from ‘07 actually transitioned into what we have here in ’13. We have a significantly more amount of low volume high mix customers. We’ve added a couple of Chinese customers, Lenovo as Mike just mentioned, Huawei being another one.

And I think we also -- the important thing to do here is to pick the winners. If we look back in ‘07, there were certainly some companies that ran into trouble and ended up not being the right pick.

Now, we think we have a top 10 customer list that actually very balanced and leading in the industry. In Q4, we didn’t have one customer greater than 10% in our business and in ’13 we don’t anticipate having one customer greater than 10% in our business.

So having a customer diversification alongside a product portfolio diversification, keeping all that imbalanced should help reduce the volatility of our business. What that will lead to is increased predictability of our financial results, which we are working on really, really hard.

The first part of that is revenue. Suppose we had rapid growth from fiscal ‘02 to fiscal ’12, we had some periods within that that were highly volatile in terms of earnings and indeed revenues.

We now think that we have a balanced portfolio with the 70-30 mix, enhanced customer diversification, no dominant customer, no customers greater than 10%, unmatched breadth and scale, and we really are the leader in low volume high mix. In fiscal ’12, we had $17.8 billion.

What this leads us to is actually to project forward, what we think that these are our targets, this isn’t guidance. These are our targets. So we think that this year we will be in that $26 billion to $27 billion range. We think we can grow that 10% and be in the $20 billion to $30 billion range, and grow 10% again and be in that $31 billion to $33 billion range.

So that’s when you sat through the presentations and you’ve seen all of the businesses that we have and the growth percentages, when you accumulate all that and as I look forward that will bundle into a double-digit growth rate for the company, 10% roughly.

The other side of predictability is operating earnings, operating profit, EPS and quality of earnings. If you have more predictability you have more quality of earnings and so the last couple of years, we’ve certainly targeted ourselves on having a quality of earnings GAAP to non-GAAP and so we want to continue that.

One fact of quality of earnings for us that we feel very comfortable about and predictability of earnings we feel very comfortable about is that 85% of our operating profit is coming from the low volume high mix business. And so it’s 70% of our revenues but 85% of our profits.

What’s good about that, as Mike mentioned at the beginning as you hear, as he went through the presentations, we have longer product lifecycles, less forecast variability, reduced competition and higher margins. So structurally it is set up to have greater predictability.

If you look at our EPS, over the last couple of years we’ve had great quality of earnings, we really only have stock -- amortization and stock comp expense between GAAP and non-GAAP. We’ve kept that very consistent at about $0.12 a year. Fiscal ’13, the consensus is just over a $1 from the analysts and we think we will be in that range of $1 to $10, so a 25% increase in earnings for us.

Fiscal ’14, we think we can build that to 15% and then probably a 10% growth in earnings in fiscal ’15. The bump between ’13 and ’14 is, we’ll talk about the next piece is the operating margin.

The operating margin expansion is really going on right now and while we get in to fiscal ’14, it will probably start to level out of it and so that’s why we think it’s probably about a 10% earnings growth in ’15. I see you are writing these things, I’m really fast. Don’t worry we are going to give you a copy of this presentation when you leaves the room.

So we have a 17% CAGR over these next three years, which is really strong for us and the quality of earnings that that comes up with us well is going to generate high free cash flow, high ROIC.

Okay. So margin expansion, more predicability, more margin expansion, I want to talk to that. As you’ve seen in each of the business unit and what I’m showing here is, I said before, 85% of the operating profit is coming from the low volume high mix business. IEI runs about 4% to 6% operating profit. HRS runs about 5% to 7%. We certainly have programs outside of that, but on average the bundle runs about 5% to 7%.

High velocity is going to run about 2 plus percent. Mike mentioned, we had a couple of other programs above that. But as a bundle it will probably run about 2 plus percent and INS runs between 3% and 4%.

This is a key slide, I’m sure you are all waiting to hit to see. If we look at the June quarter, we gave guidance of $6.1 billion at the midpoint and 3%, 3.1% operating margins. Many questions always come up around, hitting our target of 3.5%. So, I’m just going to walk you through how we get there.

First of all, we are still in transition of this 70-30 mix. So there are some costs that we talked about on the earnings call last month. That will cost us around 15 basis points that won’t be there going forward.

We think then, at around about $6.6 billion of revenue, which is an additional $500 million of revenue that can generate operating expense leverage, factory utilization that’s going to get us roughly 35 basis points. When you put those two things together that’s how we get 3.5%. The business is structurally set up at the 70-30 mix of $6.6 billion to do 3.5% profit.

Now let me go back. There are other things of course that can drive us beyond that. We’ve assumed that the 3.5% level that our components business, Multek and Power are breaking even. So as they increase and expand their margins that could be upside for us. But we are not dependent on that to get us to 3.5%.

Also more revenue, we expect to grow, should bring more operating expense leverage and greater factory utilization. We are focused on getting to 3.5%, that’s our goal. We hope to get there at the back end of this year. So the second half of the year is when we think we’ll hit back, that’s when we think the revenues will be at the right level. That’s when we think we’ll be done with the transition costs of the 70-30 and the structure then is going to show through at a 3.5% level. All these leads to shareholder value creation.

Our free cash flow has been underpinning a lot of the good things that we’ve been doing in this business over the last few years, allowed us to do a lot of things like share repurchase, acquisitions and many other things.

You can see from here in this chart that in five years of ’03 to ’07, we generated $845 million of free cash flow. In the last five years, we’ve generated $3 billion of free cash flow. That was also during the period of downturn, fiscal ’09. But in a downturn as you saw, we generated over a $1 billion of free cash flow. This model is set up structurally to generate cash in a downturn.

We really think that given those operating margins and earnings projections and revenue projections that we should be generating $3 billion to $4 billion of free cash flow over the next five years. And given that our market caps about $4.5 billion, just about 80% of our market cap in free cash flow generation. I think it’s quite a good number.

The levers of course, net income, growth in net income, quality of earnings leading to quality of net income and growth working capital run roughly 6% to 8%. That’s trended up from when we were a 60-40 split of high velocity to non high-velocity business. We were running 3% or 4%. So you have to pay the price for high margins and that is the amount of working capital that’s invested.

The inventory returns are much lower, 6% to 8%. High velocity business runs double digits. But it’s not excessive, 6% to 8% is still a very good number because we’re very good, very disciplined in our company as large as it is, as running consistently improving working capital metrics in our business.

We are very focused on disciplined capital expenditures spending. We’d like to keep that less than or equal to depreciation every year. We have an infrastructure capable of $40 billion of revenue in land and buildings around the word.

In September ’08, we saw the downturn, we had a quarter I think of $8.8 billion of revenue. We were looking at the December quarter of $9.5 billion. When you annualize that we were close to $40 billion of installed capacity.

Now, what we did in the downturn is we unplugged equipment turned lights off and laid people off. So what we are doing as we are ramping backup now is turning the lights back on, plugging in some equipment, buying some new equipment and hiring some people. So we have the land and buildings and infrastructure and management system to run a $40 billion business.

What that leads to, is speeds the growth. We are now waiting to get permits to build facilities in the corners of the world where it can be difficult and where we need to be. We have that, that’s all in place. The systems, the IT systems, the financial system, the HR systems that Mike said are really world-class are in place.

We really just need to hire direct labor and some indirect labor management to ramp up business. So we are very well-positioned. It also leads to reduced capital expenditures, because we are not having to spent hundreds of millions of dollars on footprint to ramp up that.

The last 12 months free cash flows, we generated about $420 million. That’s roughly 9% on a free cash flow yield, $4.5 billion company, which is very good greater than our cost of capital 8.9%. We got a 20 plus percent return on invested capital consistently for a along time. This model should generate probably in the mid 20s returns on capital over the next three years. And we’ve had significant excess cash generation, $3 billion in the last five years we have put to good use, which I will talk about in a minute.

So, North American competitor’s line up is follows. Last five years free cash flow that’s operating cash less CapEx. You can see they range between $200 million and a $1 billion over the last five years. We’ve generated over $3 billion of capital -- free cash flow in the last five years, just roughly 51% of all free cash flow generated in the industry.

Free cash flow is really important for all businesses not just ours. At least, the greater financial flexibility which is good in the good times and in downturns, it’s also very useful as well. It allows us to compete in businesses and business opportunities that come along as we exploit all the markets that we service.

So we win the big deals, because you just -- you need to have not just capabilities, you need to have the financial flexibility to afford to do these things. So what we do with our cash, last five years capital expenditures being roughly 40%. We pay down about 11% of debt as you know, as we de-lever the balance sheet, bought back about -- share buybacks about 26% and acquisitions about 23%.

So real nice mix of how we deploy the cash over the last five years. Looking forward, CapEx should remain about 40% if you take roughly a $1 billion of operating cash in the business, 40% of that $400 million and it equal to CapEx, CapEx equal to depreciation by $400 million.

Acquisitions, we allow budget of around 25% by $250 million. We’ve not been -- we haven’t done lot of acquisitions. You look at the acquisitions like Stellar. They are pretty small, very strategic, niche tuck-in acquisitions. So we are not going to go out and spend billions of dollars on acquisitions.

But there are certainly some capabilities that we need to go forward whether it’s in the industrial space, higher reliability space and services. We want to continue to build our portfolio of offerings and sometimes you need M&A to facilitate that, not really there to facilitate growth. In the short-term, its really there to facilitate capabilities to facilitate the growth in the future.

Excess cash, everybody else, what you are going to do with the excess cash. Our priorities for that is to continue to invest in growth oriented CapEx in a very careful way, which I’ll talk a little bit about on the next slide which breaks down CapEx a little bit more.

Strategic acquisitions, we may run over our budget one year. That’s okay because we carefully evaluate them. We’re very selective. We’ve got a very discipline process in place and we’re aware of all sorts of opportunities for use of cash and the economic return that they bring.

Managing their optimum debt level, we pay down considerable amount of debt since the downturn over a $1 billion. We’re very comfortable at this $2.2 billion debt level and I will talk a little bit more about our capital structure later on.

And then share repurchases or dividend, we found share repurchases to be a great use of cash. I have a slide on that next. That’s been very accretive for us to be very opportunistic within the market I believe at the right prices and they will have a compounding effect on EPS as we go forward.

And dividends are something that we continue to look at, I think that belong somewhere in the future but it’s not something that we completely rule out at all.

CapEx, let me talk a little bit more about the CapEx. So fiscal '12, 60% of our CapEx spend, roughly $400 million. We spend on growth-oriented project. 25% on maintenance project, we always think that there is probably $150 million to $200 million may be of maintenance CapEx in the system. Sometimes they are lower than that. We’ve had years of like 120 but somewhere in that range and infrastructure support. So we do have some land and building that we’ve been putting up in certain places but not a lot.

Fiscal '13, we are going to target $350 million to $400 million and what we have benefited from is as we shifted this portfolio to 70,30. As you know ODM PC, we stop that business last year. We redeploy it what was approximately $50 million worth of equipment around the company very quickly within 60 days, 200 machines have been redeployed and are currently plugged in and in use elsewhere in the company that help reduce the CapEx.

It’s the same thing now with RIM. Those machines are getting rapidly deployed and used up because we have other businesses that are growing and a 15% and need this equipment. And so we are rapidly deploying that capital and therefore that’s favorable towards in the short-term for our CapEx spend next year.

Look at the growth CapEx, even further roughly 40% was on assembly. It’s very different piece of equipment, not all surface meant technology. So just equipment that you need to assemble products, very different products but components 33%. So that’s been investments in our Power division and Multek division.

We’ve invested quite considerably in the Multek business over the last year and half in new technologies and we will see the benefit of that as the revenue comes on now throughout the end of the year and therefor the operating profit coming back. And I am going to return on that capable.

Mechanicals about 25%, we do invest in mechanicals quite considerably. We should be very careful when you invest in mechanicals. This equipment took us last 10 years with some of the product technologies with the customers still last 10 years. So we have to be very careful about investments you make in mechanical that you can get a return on that capital although longer period of time.

Nevertheless, we have made significant investments and we will continue to do that with the right customers and the right technology.

Share repurchase, from ‘08 to today, last five years we spend over a $177 million, sorry, we purchased over $177 million shares, about $1.2 billion, which is roughly 21% of our shares outstanding. We purchase back in '08 shares, $8.73. We have been purchasing at $6.

We know that have 684 million weighted shares outstanding. And so you can see how we have been active. We’ve been using the cash to good use and as we have been taking advantage of the evaluation of our business over the last couple of years and buying up shares looking forward as we have the confidence in our future earnings and future cash flows, it is meant that we really double down on a share repurchase.

We have roughly 20 million shares of our 10% allocation less to purchase as of December 31st. We will ask for shareholder approval to approve another 10% which is maximum allowed for us in our next annual general meeting this summer. And so we – needles to say we found this very attractive use of capital and it’s proven to have a great return for us.

It is also very important to us as the EBITDA strengthened, we did de-lever some of the debt. We have a debt-to-EBITDA right now about 1.9. And if we project those numbers we can get down to about 1.3 debt-to-EBITDA. It is very, very healthy.

We did reduce the debt by a $1 billion, approved debt-to-EBITDA by 30% and maintains a liquidity at over $2.8 billion. So all this time, that we have been repurchasing shares over a $1 billion, paying down debt over a $1 billion. We still maintained a substantial amount of liquidity of around $3 billion.

A liquidity runs roughly $3 billion. There is a great deal of financial flexibility. We have no short-term debt of any size really maturing. We can see in 2014 we have some term loans that are coming due. When we look at -- that is roughly about October 14, I think is expiry of the $1 billion of debt. When you look at today’s short-term -- today’s low interest rate, long-term low interest rates that are available to us.

We think that we may want to take out some of that debt earlier than waiting for the last minute in October 14. So we are working on that.

Okay, so just to reiterate. We’ve got a very thoughtful and disciplined approach to reshaping this portfolio to get a70, 30 split and to how by far the most expensive offering of solutions in the industry today, very well balanced, it’s very healthy, and it’s transformed the predictability of our business.

Revenue predictability, earnings quality predictability and EPS predictability going forward is greatly in hand. We have a opportunity here to increase margins from 3% to 3.5%, drive a 25% increase in earnings per share this year, continue that with 15% and then 10% beyond that.

And I think that stands out amongst many competitors and against many industry as an opportunity that we have in a short-term that doesn’t exist too much as they are in the wider scope.

As for margin expansion, I talked about. We certainly have levers beyond that but our focus is 3.5%. When we get to that, we’re going to continue to focus on growing the business, generating a substantial amount of free cash flow, having a high return on capital, quality of earnings and growing the earnings per share year-over-year-over-year.

And the last one, generating cash at the end of the day is what this is all about. And we think we can generate another $3 billion to $4 billion over the next five years, which will put to good use. Just before I get off, before I get out, guidance for the June quarter, we’re just reaffirming guidance, not changing guidance.

We talked about all the individual businesses and how we project them to be. The June quarter marks the bottom for us in terms of revenue, principally driven by a bottom in high velocity business, as we’ve adjusted our portfolio very quickly. And so we’d hope and to accrete up through the next two quarter on above average seasonal growth, which we talked about as well.

With that, I’ll ask Mike to come up. We will wrap up and then we will take Q&A.

Mike McNamara

Good job. Thank you. Okay. So let’s get the question to go on, how we’re doing on in 30 minutes. So we’ll open it up. Mr. Suva, you want to start off.

Question-and-Answer Session

Jim Suva – Citi

Okay. Sorry. I had a question actually one for Paul, one for Mike if I may. Paul, for you the segment margins you just highlighted look like INS and IE&I came down slightly relative to last year because I thought you said INS 4% to 4.5% and now saying 3% to 4%. I just wanted to understand, why there might have been a reset in margins, is there incremental pricing pressure or anything else you are seeing in the industry?

And then Mike just for you. I think this whole move towards low volume, high mix seems to be very much involved lot of companies talking about it. Do you worry about the prospects five to seven years from now? Your business become so much slower growth business but perhaps highly profitable given this massive shift towards low volume, high mix?

Paul Read

I’ll take the first question on the INS business. As we grow that business, certainly there is pricing pressure. It becomes more and more commoditized and that we’ll have an average margin effect. We have a whole host of range of margins in that business. Some well above that and some slightly below that.

So I think we’re being appropriately conservative guiding that level of margins on that business. And with the volumes that we have to generate substantial free cash flow for us. I think it is very healthy return on capital even with those margins.

Mike McNamara

And you asked the question of low volume high mix. One of the things that we’re trying to show today is we just think there is actual TAM expansion in that low volume high mix business. And why I would say that with the exception of the INS business now come back to that a little bit but all those other business, we should continue to expand the adoption in electronics and automotive continues to go up.

The amount of energy, potential energy business that’s coming available to us is we will keep going up. We continue to expand new markets. E.C. talked a little bit about over the last five years. We’ve gone from I think over seven market segments in his slides all the way up to 20.

We’ve seen a continuous development and implementation of electronics into virtually every product we use today. Mike showed a picture of some shoes that was hard to see in the picture, but it was a sole of shoe. I know some of you have seen Nike shoes that have the wireless modules within the shoe that and becoming extremely popular then connect and are actually mobility device they connect into the internet.

So I think there is some actual new business coming in that can stain that business for quite some period of time at a respectable margin level and I think its particularly different because I think Taiwanese competitors have -- are going to have a struggle going to compete in that industry.

We have to have lot more regional manufacturing, lot more connections to the design center and a lot more and different sort of capabilities and certainly lower volume and the scales and competence we associate with managing a more complex business.

So I think that actually has a lot of legs on it. And so I think there is five years left in that and then who knows what happens after five years. A lot of our business we actually create our destiny by creating new skills, new competencies, new business units, we expand in a mechanicals and machining and all these other production technologies that we can -- when we sell through our customers, we expand more and more in the things like services and then control towers. I think they are -- as the market timed, we will continue to evolve and change and grow in to those market.

But I think on average, those markets have not had deteriorating operating margins for the last five years to think about it. So I think they have been relatively stable and I think we’ve got another five years left in them and then as far as my predictions to go except that I would say at the end of that period, when things get very tight, very -- and get more commoditized, it’s a little bit about who has the best assets win and we definitely think we will have the most scale and most assets to go competing win. Jim?

Jim Suva – Citi

Yeah. Thank you.

Mike McNamara

We have another mike. Maybe you got to talk louder.

Jim Suva – Citi

Thank you. It’s Jim Suva from Citi. Towards the end there, Paul, you went over the financial stuff and I think it’s pretty important to make sure, if I understand it correctly, you’re actually guiding fiscal ‘13 above consensus, kind of, $0.01 to $0.10 and the consensus is around $1.01 as well as sales 26 to 27 and consensus is at 25 and change.

So it sounds like given the concerns about your high velocity customer as well as your overall infrastructure customers and exposure. You are actually more optimistic than what consensus is now. I want to make sure I am following that correctly as well as that EPS I assume, it does not count the charges that you announced a few days ago for solar alternative energy customer and how should we think about those charges. Are you going to go back to pro forming those out or how should we think about that?

And a question for Mike. Mike, I think you had mentioned, there is additional upside here if we get the components going. It’s really not built in or pre-value there. What has to happen to really get the components going to actually fix it as I know you’ve been focussed on it for quite some time?

Paul Read

Thanks Jim. I’ll just answer the first part. We get guidance quarterly and that’s how we’re going to continue to do. Numbers I serve there are targets for the year and for the three year. There are targets if not guided. However, we feel very confident about those targets.

The other point you made about the charge win few days ago that has been -- since we haven’t filed our 10-K that was treated as a subsequent event, put back into the March quarter -- in operating earnings, back in the March quarter. There will be no effect on June quarter going forward.

The only thing that in a June quarter that’s outside of these numbers is we have a discontinued ops piece of business which is that [VPC Camera] that has transaction happened this quarter. So there is roughly a, I think, it’s about $10 million to $15 million that is in a discontinued ops. All our number of share are continuing with ops number, so without that small charge in the June quarter.

And expenditures, it’s really due to financers, one for each business unit, of course. In the power business, you saw the revenue growth and where we’re driving that, we don’t need more revenue, we don’t need more growth to hit our margin targets. All we need to do is finish the facility adjustment that we’re talking about. We’ve got one factory that we want to adjust.

We’ve gone from five dedicated factories and two non-dedicated factories. We’re at three today. We need to go to two and that’s complete what we view as being the optimal footprint.

We’ve already made any kind of the management changes now that we need to make -- to run the business very well and quite frankly, September, we’ll have some costs associated with the facility rationalization, alternatively operating -- the underlying operating margin approved that takes that out is already at our target.

So we kind of view that as we just need to get through the next quarter and get through that facility rationalization. In the Multek business, this is a more of a high fixed cost business as most of you know. We just see if we hit those revenue targets that we’re having there then we’ll hit the turnaround with Multek.

So we don’t really need to do anything else. We don’t need to do any additional investments. We just need to be able to run that revenue through. So I’d say that’s, we’re in the power business. We kind of already have the revenue in the Multek business. You really don’t get eight week, really strongly time in that business.

So it’s -- we need to -- we just need to get that 10% revenue growth that we have in the forecast. That’s it. Mike.

Jim Suva – Citi

Yeah. I’ll explain to you with Clear Harbor Asset Management. I want to congratulate you on the amount of information you’ve given us today and breakdowns and all the numbers that we haven’t had in the past. And I’m sure you have a lot of questions after people do a lot of number crunching of those and I have some myself but well I’m here. I want to ask about something you said earlier about buying factories.

That was of course very popular in 1990s and then got less popular as people had to write them off. And so I was surprised to hear that you were buying factories at the rate that you said and you haven’t made any announcements of any of those purchases. So I’d like to ask just in general, where those are located for the most part. What end markets do you serve and how much have you invested in dollars in those -- in the factories you bought from the customers?

Paul Read

Yeah. One thing I’ll clarify. The industry bought a lot of factory as you know, as you said and that’s for a different reason then. We actually needed the confidence. We needed the customer acquisition and we need the footprint, very different than today. We’ve purchased -- we've taken over three factories from our customers in the last 18 months.

One, the medical company and two were in telecom. One in Canada, one in U.S., one in Mexico. We have not liabilities with those factories. We have no liabilities with the facility. We have no liabilities with the people. So when we take over factories today, it is for the purpose of rationalizing the supply chain for our customer.

In almost all cases, there are rationalization, encourage moving business around to bring it into the geographic appropriate or the most optimize supply chain solution for the customers. So we view that as our business. That is part of our business. We are the only company that can take $1 billion of business in multiple regions around the company and completely redistribute it and re-rationalize it.

I don’t think anybody else has the experience to know how -- and the size really to accomplish the rationalization, already optimization objective that you wanted to do. So rest assured when we take those factories, we don’t need any of these footprints. So we don’t take facility liabilities. We don’t take personal liabilities and if we take equipment liabilities, it’s only because we actually want the equipment.

Jim Suva – Citi

So these are quite different in the asset purchases of the 90’s purchasing?

Mike McNamara

I have completely different product. There is like no risk of these.

Jim Suva – Citi

What was sales volume that you did in total?

Mike McNamara

First is $800 million or $900 million altogether. And that’s what creates the uniqueness about Flex. It’s just hard to get people to just pick up $800 million or $900 million and just go redistribute it.

In our business, we probably move about $5 billion of business every single year. When you think about some of the competition, the size of our competition, how they are as a total company, we actually move, shut down, move, redistribute, bring on new business of well over actually $5 billion a year. So it’s an activity that not too many people can do.

Jim Suva – Citi

Question for you, Mike, is, in talking about the high volume in High Velocity business and the mix shift going on there, the theme of the portfolio diversification and risk de-risking of the business and so forth. As I look at that business over these four, five year chunks as you’re guys are measuring a lot of things today. There always seems to be a new customer that comes in during that period. It just grows and there is not much that you can do about it.

And the other business is the diversification strategy seems really straight forward. There is just a heck of a big denominator. You got a lot of customers. But in that business, you got 50, the big high concentration. So may be qualitatively explain to me again how really you’re going to, kind of, de-risk that when you’re kind of starting with a half of chunk to get through to begin with and then Paul can you just walk me through real quick, the free cash flow generation, roughly about the same over the next four, five years as it has been.

Last few years, you obviously get the benefit of the big urge of working capital during the downturn. Is this just like an understanding offset of hey you got higher profitability but you got working capital that’s got to get worked in there as well that kind of look like CapEx and that does relatively in line going forward. Thanks.

Mike McNamara

Yeah. So you are absolutely correct over the years, we’ve always had one big guy that seem to train [record our member] of Siemens back in probably about 2003 or something and Sony Ericsson, we probably got up to about $4.5 billion, Motorola, we got up to Motorola cellphones. We got up to about $3 billion. In each one of those cases like Siemens went from 9% market share to like zero in like one year.

Sony Ericsson ran very high market share as well on the strength of their Sony Walkman, when they brand their phone Sony Walkman and as well as Motorola, we probably add $3 billion of cell phone business when they were very high with RAZR that kind of went away.

We’re actually were waste water with RIM. So along comes RIM, we get a little bit smarter. By the way during that whole time frame, the amount of business, we have a non-consumer business which keeps going on. So our ability to say no was not existing in 2007. Today, it’s really easy.

But we learnt from that experience in RIM, one of the things that I mentioned on our call, we actually took the test assets of RIM which is the only thing really unique to RIM. We don’t have unique facilities. We don’t have unique SMT lines. All those SMT lines, we buy over here any way.

So the ability to redeploy those is we’re sure within the next six months. The only common piece that we have there or the risky piece we have with test assets. And I think we said in the call, we’ve been through this before that we depreciated those over three year time frame.

And I think that’s very aggressive. I don’t think that was typical. It dropped our margins but as you can see we’re going to go from a very significant revenue base with RIM with a very significant decrease as you can see by the numbers and yet our operating profits go way up. At the same time, earnings per share has grown up about 30%. So we’ve actually been de-risking that as a potential for quite some time.

So I think we’re smarter, better equipped. I think we’re more conservative on those customers and quite frankly, what Mike described and to me the only place that really happened is in that High Velocity place. What Mike has described is we’ll go after PCs, we’ll go after smartphones and we’re going to go after it, not by huge volumes of where you can build a chip in China but we’re going to go after with services and product completion centers and printed circuit boards and power solutions and things that are unique, more unique and where we can have more margins as a result of creating more value with the customers.

So I actually think and now you have fast forward to FY ‘13. Now, we’ve got 70% of the business in these non-consumer places. So as those years moved on, we’ve moved ourselves in the position where we can say no.

And that’s -- and that we can balance our portfolio in the most optimal way that delivers value for the shareholder. So I kind of view that transition. We’ve kind of add one last one with RIM. We actually de-risked it all along, nobody know about it. And as we move forward, I actually think we’re continually more disciplined and we’ve stated what our business model intention is and how we plan on moving forward in the future. We think it’s to lay one for investors.

Mike Dennison

On the slide that I showed, next five years, we anticipate generating $3 billion to $4 billion of free cash flow. Last five years, we had about $3 billion that included a year that had downturn, in that downturn -- over an 18 month period in that downturn. We generated over $1 billion of free cash flow.

Assuming that isn’t there in the future, we still generate $3 billion to $4 billion. We have over $1 billion of operating profits after ‘13, ‘14, ‘15, ‘16 and ‘17. So when you start with that and you just get little self as that on the net income, CapEx is equal to depreciation. Working capital cost is around about $200 million to grow 10%.

So that is in a big number of EBIT and what you get is on average essentially five year, $700 million of free cash flow, just average and they build less than average.

Osten Bernardez – Cross Research

Hi. Osten Bernardez of Cross Research. Just wanted to follow on with respect to HVS and given the -- given your presentation away of sales, obviously going beyond 2013, you’re projecting some, you’re targeting for some growth, but the 5% to 10% that was given, I believe, today seems or I might have miss little bit, it’s not aggressive but essentially more optimistic than what I would have followed originally. So my question is what supports that 5% to 10% and how much of that 5% to 10% consist of you are doing smaller lot deals in that $200 million range?

Paul Read

Yeah. It’s hard to separate out how much is the small deal. The elements of that 5% to 10% growth are going to be small deals, more sophisticated services in product completion centers or control towers but we’re really controlling in the supply chain, possibly more verticals. I mean there is a lot of different ways and also participating in India and Brazil, and we’ve got a facility that we do for Hewlett Packard in Turkey.

I mean, there are number of different ways to find the value in that space. It’s 5% to 10% because we want to be disciplined about which product spaces we go after. We already know that we can make that number as big as we want. We have a very competitive footprint.

We have a very strong relationship in almost all of these customers. We can grow that to any number we want. We just want to make sure that we’re growing it only in the places that really creat value that we have differentiating capabilities and we’re going to have higher margins.

So we think the right number is probably about 5% to 10%. It’s reflecting a pickiness about us or may be, not pickiness, maybe it’s more like a disciplined approach towards what that models looks like. But we feel that’s about the right number.

Osten Bernardez – Cross Research

I just want to clarify on, coming out of, I believe, 2013, with, let’s say, 2% margins in that business. Is that your end fiscal quarter around that range or you expect beyond -- just beyond fiscal 2013 that you (inaudible).

Paul Read

Yeah. I would say once we get through this 70, 30 transition that Paul talked about which is just some adjustments here and there which aren’t that significant. That transition takes one to two quarters. This being one quarter, may be September being a second quarter and then once we get through that 70, 30 transition, it’s really -- we're already there.

I would say if you look at the underlying profitability. It’s already at about the 2% level. We will be there than this year. So that transition will be complete and will be hitting our target.

Craig Hettenbach – Goldman Sachs

Thanks. Craig Hettenbach with Goldman Sachs. Just following up on Mike’s comment on high volume business, the big TAM and you have to be there. Can you talk about some of the synergies, maybe it brings the organization. If you just look at mix, it would make sense of taking to you to maximize the other business unit. So what are those things you’re taking away from the high volume business that make sense to keep a good presence there?

Mike Dennison

Yeah. I’ll give you two examples here. You saw the Lenovo example. I’ll reiterate. This is like not our video. This is like their video to sell to their customers and we just -- but we’re in it all over the place because they are bragging about the supply -- the information about the status of where their products are in the supply chain. This is what we call end-to-end supply chain solutions.

Some people call it control towers but here’s an example where we have a PC customer, where we’ve created a huge confidence around knowing where every piece of product is in the supply chain. That we can apply across to telecom, to datacom, to any customers. So here is a great example. We’ve taken some that has a lot of transaction volume, lot of short product lifecycles. So there is a lot of learning in short product lifecycles. We’ve created this confidence and where we started with like a PC customer, we also have a very large cell phone customer doing exact same thing.

We can then expand that and carry that across every industry, all the way into the medical industry. So here is a great example about how there are still a lot of value to go after in the consumer space that can apply across the rest of our businesses.

And like said, what’s really great about those short product lifecycles, you’ve got lot of cycles in learning when you create new competencies and new capabilities. It actually creates value, by having those cycles of learning, very different then when Paul Humphries talked about Ford SYNC, where we are going to build the Ford SYNC and cars for the next six years. I love that stability in all that but the learning process associated with launching multiple product lifecycles aren’t there.

Sherri Scribner – Deutsche Bank

Hi. It’s Sherri Scribner from Deutsche Bank. I wanted to get a sense of some of the criticism that your competitors put on you? Is that you are too big to win the small deals which is where the real high margin business is? How do you response to that and what do you think your skills are with those smaller customers to drive revenue growth?

Mike McNamara

So we don’t have, so -- we don’t have a limit in terms a lower limit of what is good revenue for Flextronics, you said a point of data. So all of those small deals we want. What are our skills to go get them, we have more feet on the -- more street under feet, we have more locations, more capabilities, more cycles of learning, more different products that we do. We have more certified factories. We have more experienced. We have a large footprint doing these things. We have more access to these customers and we got the power when we go after and we dissect our business, and we say, you go after these medical customers, which maybe low volume. And we apply the power of the $30 billion company with all the technologies and everything we have, its fears.

And I think you’ll find that as you look over the years, we’ll continue to book billion of dollars of business. I mean, some of our customers say, we are the leading manufacturer. So we book $2 billion of low volume high mix this year, $2 billion, and we have competitors out there, who say, we are the leading low volume high mix manufacturer in the world today, and they are $2 billion. It’s like how can that be? We use book to entire company this year.

If you want to talk about cycles of learning and know how about, how to do low volume high mix, it’s a like astounding. So I mean our skill sets off the charts, our desire is high, our ability to go after it is, is very strong and I don’t know, I won’t tell you.

That’s why I did the low volume high mix two slides, because I’m trying to tell you guys like, I mean, I don’t get the strategy of, I think, as one of you guys wrote it in here out here, $2 billion company out there, so low volume high mix leader liked really.

Mike Dennison

We are an 85% of the business that we have with this fee is customer of $30 million or less, so it’s 300…

Mike McNamara

85% of our operating profit is low volume high mix, you don’t think that’s important to us, some is wrong. So, I guess, if competitors think that’s not a problem then they don’t have to worry about anything.

Sherri Scribner – Deutsche Bank

Okay. That’s fair. And then there is a nice slide up about all the capabilities that you can offer to OEM from services to logistics, really the whole package and how that can limit the amount of inventory in the channel if you are just going to one supplier. My question is how willing are OEMs to put all of their eggs in one basket and gives you everything, because don’t see OEMs want to have multiple suppliers for their products?

Mike McNamara

Sure. And sometimes they are going from five suppliers to two, sometimes they are going from eight to three, its still advantage for us. The one trend, the key trend that Caroline talked about that I talked little bit about is, we are actually seeing a change in some of the behaviors of the OEMs, because if their business becomes, continues to become more regionalize, as they continue to think about how they build, where they need to build as things are going to become more government regulation and people are going to demand, things are get built on the U.S. wherever, every government wants their business is to build the product in their country.

And as of the operating profit get squeezed out. I think if you look across the total S&P this year, you’ll find that revenue is a little bit harder to come by over the next two years, just because of all the micro challenges that you see. And also they’ve been really effective that squeezing out really good margins over the last two years. So I think, lot of that’s going to end, but you are still going to have increasing costs like in China and those places.

So we actually think there is an opportunity, there is a requirement for the OEMs and what we are seeing from those OEMs is that, as they look to solve, how do they drive cost out. They have to look at the total supply chain. And I think before they just want to put it for bid, have five guys bid on it and you go after, and that actually helped smaller competitors if they’ve put in an aggressive bid.

Now I think they are more inclined to find sources of profit, or sources of cost reduction by looking at the entire supply chain and trying to drive and optimize the entire supply chain simultaneously and that an ecosystem shift that we feel we are getting well prepared for it. So that’s a trend that we are seeing. We didn’t see that over the last few years. We saw here is our product, everybody go bid on it, good luck. So I think that’s a key trend and I think we are well-positioned for it.

But they are not going to give everything to us. But, a $300 million company will. But once you get up to $500 million in more they are going to want to outsource, but each one, but they might take the whole supply chain. And the control of the supply chain and give that one versus images multiple manufacturers. But once again, this is go from seven to three manufacturers we are in advantage position.

Shawn Harrison – Longbow

Hi, guys. Shawn Harrison from Longbow. Two questions. Just Paul for you how much of the share purchases if you completed your quarter to date? And then Mike for you just thinking about Multek over the years, you have and able to get kind of upper single-digit or even a low double-digit EBIT margin in that business? Is there something in the mix that maybe differentiate it, say, maybe Viasystems or TTMI or just something was that always you are never at the optimal volume, just kind of maybe wondering, can you get that type of EBIT margin, solely a volume gain or is there some mix dynamic evolve as well?

Paul Read

From share repurchases, the fee is fix and very attractive. It has been. So we have been active, but I’ll wait for the next month’s earnings, we’ll give you an exact number and an update for the whole quarter, but I neither say these levels does have attraction.

Mike McNamara

For TTM and Viasystems, so these, they have a very strong aerospace and defense, very traditional business. Viasystems has a lot of automotive. Those products when they are outsource are difficult to move, there is less competition and there is very high margin. And quite frankly the depreciation of facility is significantly depreciated such as the margins are higher. So I actually don’t anticipate getting to those margin structures of those king of businesses.

So we can get to margin structures that are mid to high single digits. I think that’s a fair representation of what I think the expectation is of that market and the competitors within market. But we actually don’t have that historical base with all depreciated factories that participate in different market where there is 15-year product lifecycles in some of them, that one, like a nice little cash count there that is not something that’s available to us.

Brian Alexander - Raymond James

Hey, Mike. It’s Brian Alexander with Raymond James. Back to Sherri’s question what percentage of your revenue comes from customers leveraging multiple offerings in Flextronics from assembly to services, to mechanical, you track that, do you have a goal and how does that vary by segment?

Mike McNamara

Yeah. That’s a super good question, because it’s hard to track. I showed you that slide of the top 10 customers and you can its significant. So customers like having more of a one stop shop. They love financial security especial and then they get in the components. They love the financial security of the total Flex, which is even better than the component manufacturers.

But it’s hard to do it. But I would say, I got to believe, 50% of the customers within a year are using one or two or three services that we have. But I don’t want to say almost any significant customer of $100 million or more is using more than one service. I don’t know, if got an idea on that, it is significant use, let’s put it that way.

Brian Alexander - Raymond James

Okay. But the 3.5% operating margin target that’s for the back half of this fiscal year.

Paul Read

Yeah. Second half of the fiscal year. That’s correct.

Brian Alexander - Raymond James

Okay. And what level of components profitability do you need to achieve to hit 3.5%. I know you talked about 4% to go beyond 3.5%. But what do you need, what’s embedded in that 3.5%?

Paul Read

It’s need the break-even, we don’t need any profit out of to hit 3.5%. And following up on Mike’s saying, we’ve, on the slide there is $5 billion of revenue we have in other services, that’s 20% of the company and not all of that translates into between from assembly to service, et cetera. But it is a big number, more than $5 billion is mechanicals and all those other services that you saw up there.

Brian Alexander - Raymond James


Mike McNamara

Great. So we are going to end the formal portion of the Q&A right now. We thank everybody here for their interest. There’ll be plenty of more time to ask questions now in the back along with some drinks. And also I promise you a copy of all the slides today. So if you’d like that in the back the same table that you saw when came in with the name batches, few of my colleagues are over there and they have all the USB sticks with everybody’s slide presentation that you saw. That’s it. Thank you.

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