Molex Management Discusses Q4 2012 Results - Earnings Call Transcript

Aug. 8.12 | About: Molex Incorporated (MOLX)

Molex (NASDAQ:MOLX)

Q4 2012 Earnings Call

August 08, 2012 9:30 am ET

Executives

Steve Martens

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

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

Analysts

Amit Daryanani - RBC Capital Markets, LLC, Research Division

Mike Wood - Macquarie Research

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

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

Sherri Scribner - Deutsche Bank AG, Research Division

Joseph Wittine - Longbow Research LLC

Ruplu Bhattacharya

Brian John White - Topeka Capital Markets Inc., Research Division

Jim Suva - Citigroup Inc, Research Division

Craig Hettenbach - Goldman Sachs Group Inc., Research Division

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

Michael J. Wherley - Janney Montgomery Scott LLC, Research Division

Chelsea Shi - UBS Investment Bank, Research Division

Alek B. Gasiel - Barrington Research Associates, Inc., Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Full Year 2012 Molex Inc. Earnings Conference Call. My name is Jasmin, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, to Mr. Steve Martens, Vice President, Investor Relations. You may begin.

Steve Martens

Thank you, Jasmin. Good morning, and welcome to our June 2012 conference call. Joining me today are Martin Slark, our CEO; and Dave Johnson, our CFO, who will be covering our fiscal fourth quarter and full year results, as well as FY '13 Q1 guidance. Please visit our website, molex.com, for a copy of presentation materials and to access a replay of this call.

Slides 1 and 2 of the presentation contain our Safe Harbor statements. During the course of this presentation, we will be providing forward-looking information and referring to non-GAAP measures. Please read carefully the forward-looking statements section of our press release and Form 10-K for an understanding of the risks and uncertainties associated with forward-looking information and a reconciliation of non-GAAP measures to GAAP.

And now, I’ll turn the call over to Martin.

Martin P. Slark

Thank you, Steve, and good morning, everybody. If you turn to Page 3, I will start to give you an overview of the year. Given this is our fiscal year-end report, we are obviously reporting a little later this quarter than normal. And as a result, I think most of the market trend data I'm about to go over shouldn't be new to most of you. For the final quarter of our fiscal year, we reported revenues of $859 million, up 3% from third quarter but down 6% from the fourth quarter of last fiscal year.

Revenues, as reported, were also approximately $10 million below the low end of the revenue range that we gave at the beginning of the quarter. The primary causes of this short fall were weak revenues in the consumer electronics market, particularly with major Japanese customers; weak sales in the midrange of the mobile phone market; and weak Industrial sales in Europe.

Our bookings for the fourth quarter were $901 million, up 3% from third quarter, but basically flat with the prior year. The book-to-bill ratio for the quarter was very strong at 1.05:1. Looking at the trend in our bookings, we saw a fairly strong recovery in the month of March after Chinese New Year, then relatively weak bookings in April and then progressive increases in our bookings in both May and June. The economic climate is clearly challenging, particularly in Europe. However, our base business now seems to be reasonably stable at this point.

New product wins with major customers drove increases in our bookings in the months of May and June, which is why we'll be guiding to a sequential increase in our revenues later in the quarter. I have to say we're very pleased with some of the new wins that we had in the last couple months.

If you turn now to Page 4, and looking specifically at the June quarter, our automotive revenues increased 5% year-over-year, but decreased slightly from the March quarter, with European sales being both weak sequentially and year-over-year. We continue to see good underlying strength in our automotive business in the U.S. and Japan, with a slight slowdown in bookings in the last quarter in advance to the summer shutdowns and this follows a fairly normal seasonal trend. The design activity and project wins within the automotive industry continue to be very strong. And the electronic content picture continues to be added to vehicles creating good opportunities for growth.

We are seeing a strong pipeline of new project wins, particularly in the powertrain, safety and infotainment areas. Another area of another positive trend within the automotive industry is the increasing adoption of standard products, particularly in Asia, which results in a better return on investment and improved profitability.

Looking forward, we remain confident that the automotive sector will be an area of growth in fiscal year '13.

Our infotech revenues increased 2% from March quarter, but were down 4% year-over-year. Improvement from the March quarter largely reflect increased revenues into the tablet market. High-end computing, server and storage and peripheral equipment were relatively stable, while the laptop sector was down.

The fourth quarter of fiscal year '11 had an all-time record revenues and bookings in this sector, primarily because of concerns at that time of component shortages. This market was also projecting a stronger second half to calendar year '11. And as we now all know, we saw inventory corrections during that period.

Year-over-year however, the server storage markets were up, as well as sales into the tablet sector. Sequentially, we saw a 5% increase in bookings and this reflects new project wins, particularly for our high-speed backplane and I/O products.

In the telecom sector, revenue increased 2% sequentially, but they were down 17% year-over-year. On a sequential basis, we saw reasonably stable revenues for infrastructure and mobile. Year-over-year, the mobile midrange and the infrastructure markets were both down. The infrastructure sector has been slow for some time, but the underlying trend now seems to be improving.

The mobile market, which has been weak for some time outside of the smartphone sector, now seems to be improving as well, and we saw good order strength in this sector in the last quarter. Sequentially, our telecom orders in the telecom sector were up 11%, which largely reflects new products being sold into the smartphone area. And we would expect our revenues in this sector to be stronger as we move into Q1 of fiscal year '13.

Consumer electronic revenues increased 7% for the March quarter, which was down because of the impact of the Chinese New Year in Asia. Our revenues were down 4% from the June quarter last year, primarily reflecting the weaker economic climate around the world and slower consumer demand. And in particular, poor demand from the leading Japanese consumer electronic companies. It was encouraging to see that all submarkets increased sequentially particularly at the end of the quarter, indicating we're starting to see a pre-Christmas build. We would expect this trend to continue as we move into the first quarter of fiscal year '13.

Industrial revenues were up 4%, reflecting stronger revenues, primarily in the U.S. and Asia, with Europe continuing to be weak. Year-over-year, revenues were down 9%, reflecting the weaker economic climate on a global basis. Our Industrial business now seems to have stabilized and we expect slightly stronger revenues in this sector based on investments and capacity additions and factory automation projects on a global basis.

Our presence in the military and medical market is still relatively small. For Molex, the best opportunity in the medium-term is in the medical market, as more and more electronics are used for diagnostic equipment. 11% year-over-year growth in orders in this sector, largely reflects new medical project wins.

Looking at our orders by channel and by geography, we saw a fairly consistent trend across all channels with business basically being up slightly on a sequential basis, but flat year-over-year. Geographically, Europe is the weakest region, America has declined sequentially, but was up year-over-year, and Asia had the strongest growth.

Our distributors continue to manage our inventory very tightly, lacking the conviction to increase inventory levels given the uncertain economic climate. However, we were very pleased in the fiscal year '12 to see that our distribution POS sales exceeded $1 billion for the first time in the company's history. Distribution remains a very important channel for Molex representing 26% of our revenues. Given our range of new products, we expect distribution revenue to grow in fiscal year '13.

Turning now to Page 5, let me look at the trends for the full year. Fiscal year '12 was basically a flat year. As you know, fiscal year '11 was a record year for Molex. And frankly, we were disappointed that we cannot improve upon those record results over the last 12 months. It should be noted, however, that there have been no significant acquisitions over last 2 years, so we are really looking at just organic year-over-year comparisons and the impact of the economic climate.

The last quarter of the fiscal year was a strong quarter, but the inventory corrections and floods in Thailand clearly had an impact in Q2 and our bookings fell significantly in that quarter. In Q2 versus Q1, we saw $100 million reduction in our bookings. But over the last 2 quarters, we have basically recovered most of that loss. The challenge is to keep the positive quarter-to-quarter bookings increased trend going, given the challenging economic climate.

Looking at the full year results by market, automotive was probably the strongest sector over the last 12 months. European automotive sales did decline during the year, but this was more than offset by increased production in Japan as customers recovered from the supply chain interruptions caused by the earthquake and tsunami. And generally speaking, demand continues to recover in the U.S. and China.

Looking over the last 12 months, our Automotive business was split 40% in North America, 32% in Europe, and 28% in Asia. The most positive subsectors for us are applications within the safety and infotainment areas. But generally speaking, across the automotive market, the content theme will continue. Going forward we would expect to see 3% to 5% unit increases in the automotive market on a global basis, coupled with content increases, this should give us the opportunity to increase our revenue by 5% to 10% a year.

Year-over-year, infotech revenues increased 5% versus fiscal year '11. The increase being primarily driven by the server and storage markets and content within tablets, while the laptop sector was generally weak. Overall, we were pleased with our performance in the infotech market over the last 12 months. We have a very strong position in high-speed products, including next-generation backplane and I/O's. And we were the first company this year to demonstrate 100 gigabit I/O solution.

During the year, we also introduced a broader range of power products. It's clear that the tablets are displacing desktops and laptops. And our content within various tablet products remains strong. We view this macro trend within the industry, as being a good trend for our overall revenues given our strength in micro-miniature products and antennas.

Telecom revenues decreased 10% from the prior year. Telecom infrastructure increased slightly in a weak market, reflecting our strong position with some leading customers and a broadening product profile. The decline in our telecom sales was driven by poor performance in the mobile sector, with several key players well known to all of you in the midrange market struggled.

Over the last couple of months, we've seen a recovery in this area. And sequential growth in our bookings indicates that we should have a stronger second half for the calendar year in the mobile market. This growth will be stronger than the overall market trend and reflects new product wins at major customers. Sales into the consumer electronics market declined 6% from last year, with key customers in Japan having a particularly challenging time. The TV market, and particularly the LCD part of that market, was weak last year, but the gaming sector was stronger. Appliance was generally flat.

Molex had good growth in the Pachinko market, which as you know is a unique end market for us, but we're also seeing increasing sales going into new electronic games which will be released for this Christmas. Industrial sales for the full year were down 9% with revenues being significantly impacted by distributor inventory reductions. And we have particularly weak sales in the Industrial market in Europe. Overall, Molex has about 26% of its revenue going through distribution, but the Industrial sector, up to 70% of our revenues goes through distribution. Therefore, shifts in distribution inventory levels have a significant impact on our revenues in this market. The key opportunities for growth here are primarily in the factory automation area, driven by the need for capacity expansions and new product introductions that require new product lines.

In the weak economic climate, we have not seen significant customer investments in these areas. With many projects on hold as customers assess short-term trends. Given the rising wage rates around the world, we would expect, longer term that the factory automation area will grow, and we are well positioned with new products to support that sector.

Other attractive submarkets within the industrial market are food and beverage equipment, alternative energy, lighting and nonautomotive transportation. All of these sectors, we believe, have good opportunities for growth, assuming a reasonable economic climate. As indicated in the quarterly results, our medical and military sales still remain a small portion of our overall revenues, but continue to grow as we penetrate new customers and as we see increased electronic content in this market, particularly in the medical field.

Turning now to Page 6, I have attempted in the previous slides to at least give you a flavor for our overall revenue and booking results, both for the quarter and for the full year. Given that this is our fiscal year-end report, I would also like to take just a few minutes to update you on some of our other operating metrics.

Fiscal year '12 was clearly a challenging year for organic growth, but we were pleased with our underlying operational performance of the company. We believe that this operating performance in a challenging economic climate validates our new model. During the year, we generated $347 million of free cash flow, which was a new record for the company and we returned $141 million to shareholders through dividends. Our dividend rate was increased 10% effective for the July payment. And we are committed to continue to increase that dividend as operating results and free cash flow increase.

In fiscal year '12, our payout ratio of free cash flow is 41%, which is in line with our target payout ratio. Our revenue and operating income results for the year were the second-best results we have ever reported. And despite the flat revenues, our gross margins expanded from 30.3% to 30.6%. We also recorded our best ever year for quality and delivery performance. This is our fifth year in a row of quality improvement. And the ongoing improvement in these operating metrics is a credit to our employees worldwide and the techniques they have at their disposal such as our Global Link Six Sigma initiative and leveraging our Global SAP system.

We believe that our industry-leading customer service metrics and the resulting customer satisfaction will drive new opportunities for the company and our key customers. As we move into fiscal year '13, these new opportunities will include more complex assembly projects which will help us further revenue increases at our key customers.

The key areas of focus for us in fiscal year '13, which has just started, will obviously be growing our revenue despite the economic climate, and continuing with the operational effectiveness efforts we have made and continue to drive operational improvements throughout the entire organization.

Let me now turn the call over to Dave Johnson.

David D. Johnson

Thank you, Martin, and good morning, everyone. Let's begin with the full year results on Slide 7. After increasing 19% in fiscal 2011, revenue declined by 2.7% in fiscal 2012. We began fiscal 2012 with an all-time record for revenue in the first quarter. But then demand fell off sharply due to global economic conditions, and both bookings and revenue fell short of expectations for the balance of the year. But on the very positive note, gross margins increased each year, reaching 30.6% in fiscal 2012, despite the sequential decline in revenue. Effective pricing management and the implementation of cost initiatives helped us to hold margins in this difficult environment.

The margin improvement came at the same time that the cost of gold and copper reduced gross profit by $28 million on a year-over-year basis, even after the benefit of our comprehensive hedging program. SG&A in fiscal 2012 increased by only $14 million, of which $9 million was due to foreign exchange. In summary, our new cost structure has allowed us to maintain our profitability during a year of weaker than expected demand.

Results for our fourth quarter are shown on Page 8. Revenue of $858.5 million increased 2.6% sequentially, but came in below our expectations. As Martin mentioned, our shortfall was most evident in mobile consumer and Industrial markets. Our gross margin continue to hold at the 30% level, but declined 50 basis points from the March quarter, which included some positive product mix as we reported on the last call.

SG&A of $161.6 million was lower than both the sequential and year-over-year quarters, due to $6 million of insurance proceeds related to the March 2011 earthquake and tsunami in Japan. Our teams both in the U.S. and Japan have done an outstanding job to recover costs that impacted Molex in the aftermath of this disaster. The legal expenses for our lawsuit in Japan impacted Molex by approximately $0.01 per share, as expected.

Interest expense and other income were roughly in line with the sequential quarter. The effective tax rate for the quarter was 24.3%. And this included a $6.1 million tax benefit related to our plan to remit funds from Europe to the U.S., which will result in the recognition of foreign tax credits and a reversal of deferred tax liabilities. Without this onetime item, our effective tax rate would have been 30.8%. Our effective tax rate for the full year was 29.7%, close to our initial projections of 30% and comparable to the rate of 30.5% for fiscal 2011. Including the positive insurance adjustment and tax benefit, our EPS for the quarter was $0.40 per share.

Balance sheet and operating metrics are on Page 9. Our balance sheet strengthened again in the quarter as net cash grew to $401 million. At the end of the quarter, there was no outstanding balance on our $350 million revolving credit facility, which then provides us with flexibility going forward, as we look to invest strategically in our business and continue our dividend program. Receivables days decreased by 2 days sequentially to 70 days, and inventory days decreased by 6 days sequentially to 87 days.

Return net assets dipped below 20% at 19.4%. But on a monthly basis, has turned the quarter and is now moving higher again. True to our model, we continue to invest in new product introductions during this period of slower demand, which is reflected in our higher R&D for the quarter. R&D increased by $1 million sequentially, and by almost $3 million on a year-over-year basis.

Please now turn to Slide 10. Cash flow from operations and free cash flow continue to be very strong. Free cash flow for fiscal 2012 was $347 million compared to $204 million last year and just $21 million in fiscal 2010. Our stated goal is for free cash flow to approximate net income. But as you can see on the chart, free cash flow has significantly exceeded net income for the past year. Capital expenditures in Q4 of $77.7 million or 9% of revenue, reflects investments that we are making in new products that will be launched in the September quarter. This also explains our increased investment in R&D, which was shown on the previous slide.

We have taken on several new projects with key customers for relatively complex connector solutions. Due to the complexity, these projects will require a higher level of purchased components than our traditional products. Assuming that the general economy does not decline further, our expectation is that these new projects will help Molex achieve revenue growth of 8% to 10% in fiscal 2013, well above the general connector market. However, due to the complex nature of these products and the requirement for additional purchased components, we would expect fiscal 2013 gross margins to remain at approximately the same level as just reported in Q4.

And finally, on Page 11, we show our guidance for Q1. Despite the sluggish global economy, our new product introductions planned for Q1 are expected to result in revenue in the range of $900 million to $940 million . At the midpoint of this range, this is a sequential increase of 7.2%, well above normal seasonality. We expect EPS for the September quarter to be in the range of $0.37 to $0.41, assuming an effective tax rate in the range of 30% to 32%, and assuming constant foreign exchange and commodity prices.

In conclusion, while fiscal 2012 was a difficult year due to the global economic environment, Molex has continued to make good progress in many areas. We maintain gross margins and held SG&A spending, while still investing in new products that will lead to above market growth in fiscal 2013. Our capital spending at 6.5% of revenue was right in line with guidance and was the lowest level in many years. And our customer service metrics, including quality notifications and on-time delivery, were at record high levels for Molex. These accomplishments, along with our strong financial position, give us confidence going into fiscal 2013.

And now we can open the lines for questions, please.

Question-and-Answer Session

Operator

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

Amit Daryanani - RBC Capital Markets, LLC, Research Division

It's Amit Daryanani, RBC Capital Markets. Just a question on the fiscal '13 expectations you laid out towards the end of the call. After 8% to 10% revenue growth, could you just talk about how much of that is coming from these new program and the new win ramping up versus organic things you expect next year? And then secondly, can you maybe just talk about, well, if gross margins will be flat next year at 30% level, how should we think about OpEx dollars next year as well?

Martin P. Slark

Thanks, Amit. Let me attempt to address the growth issue in terms of the [indiscernible] makeup of that, and then I'll let -- and I'll talk a little bit about the gross margin, and Dave will address the OpEx question for you. In terms of growth, we're assuming relatively modest organic growth in terms of our traditional base business, given the economic climate. So if you assume an 8% to 10% overall growth, assume 1/3 to 1/2 of that is going to come from our normal base business and the rest is going to come from the new programs that we have with some major customers that we think will drive additional growth. And the reason for the gross margin staying flat is those new programs that we've got that are complex include some purchase components and obviously you have a lower mark up on those. So when you add those in to the value of the projects that were driving, you don't get the same gross margin on the overall business, but in total, obviously, you're going to see good flow-through [ph] from that. I will let David address the OpEx.

David D. Johnson

Sure. In terms of OpEx or SG&A, if you look at the overall year, our OpEx as a percent of revenue will come down as the year progresses. But let me kind of try to frame maybe the first quarter and second quarter for you a little bit. We had $161.6 million of SG&A in Q4 [ph] that includes $6 million for the insurance. So if you add that back our base for Q4 is about $168 million. We'll be adding roughly $3 million to $5 million of SG&A in the first quarter and that's related to R&D, to sales costs that go with these new programs, as well as our plans to grow. But we also will be reinstating some incentives in that first quarter. We would also then expect another incremental growth in SG&A in the second quarter as you know, as most of you know, that's when we put in place our merit increases, so that's another maybe 3% to 5% increment in Q2. So hopefully, that gives you kind of a sense of how to model SG&A going into 2013.

Amit Daryanani - RBC Capital Markets, LLC, Research Division

That's extremely helpful. If I could just maybe follow-up on these new wins that you guys have. Could you maybe talk about what's the breadth of these new wins? What segments are they around? I guess my concern or question really is, is there more handset [ph] consumer-centric than maybe September, December quarters are very strong and then the back half tapers off, is that the right way to think about it?

Martin P. Slark

I should have split in 2 areas. They split in the smartphone area and then they're split in the infotech area with some high-speed products. So I would expect, obviously, the smartphone part of it as you said to be stronger going into Christmas. And I would expect the higher end computers, infotech wins to benefit us in the second half of the year.

David D. Johnson

Amit, before you get off, I want to clarify one thing that Steve Martens just told me. I mentioned the 3% to 5% I said percent growth in merit. I meant to say $3 million to $5 million sequential growth in the second quarter for OpEx because of the merit.

Operator

And your next question comes from the line of Mike Wood with Macquarie Capital.

Mike Wood - Macquarie Research

You've taken on a lot of margin improvement initiatives -- your freight to sea pricing systems and Focus Accounts and for your guidance next quarter at the midpoint, I'm calculating a low-20s incremental operating leverage, is there anything unusual impacting the quarter in terms of mix or these new products and along those lines going forward, should we expect this lower-level of incremental margin to fall through?

David D. Johnson

I think you're right in terms of your calculations. The incremental gross margin next year is about 30%, but operating is probably closer to 20%. And what we're saying is because these are specialized, complex new products that have higher purchase content, they are going to deliver blended gross margins at about the same levels as we had for this year. Longer term, we, of course, as our base business grows, we expect to still have a focus on incrementing margins. But because of this fairly significant project we're taking on, it's going to be at the same margins as we saw in the fourth quarter.

Martin P. Slark

And let me add a couple of comments of that. I think in the short run going into Christmas, we have the launch of some of these complex projects and obviously, you have the startup costs associated with those. If you're looking at the second half of the year, where we have some of our higher-end, higher-speed products being launched, the margins on those are higher. So I think over time, we certainly in our core connector business would expect us to be able to maintain and expand those margins. But in the short run, we're obviously going to see some headwinds relative to that.

Mike Wood - Macquarie Research

Great. And can you also comment on your thoughts on price mix going forward?

Martin P. Slark

In terms of price erosion, it's interesting that the new pricing software we put in place, one of the benefits of that, I think, has been enabling us to have managed our price erosion very effectively. And in fact, it was down below 2% in the final quarter of last year. So we've really seen some tremendous benefits for putting that price erosion in place -- that pricing system in place. Now obviously, I think with the economy being slower, there's still significant price competition out there. We wouldn't expect it to stay at that level but certainly, we would think it would be at the lower end of the 3% to 5% range which we've historically seen.

Operator

And your next question comes from the line of Matt Sheerin with Stifel, Nicolaus.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

Couple of questions. One, just on the commentary about the growth in the margin pressure due to the mix. It looks like with the SG&A going up and the margin is down, even with the high single-digit revenue growth that you're talking about, it doesn't look like there's much EPS growth baked into fiscal '13. Is that the right way to look at it?

Martin P. Slark

We haven't given guidance, Matt, I think for the full year. Obviously, what we're talking about is the first quarter here.. I can tell you that our expectation for the full year, I think Dave talked about an 8% to 10% growth. Clearly, our goal as a company is to grow our EPS at that rate or faster. But I think we have new projects and operational improvements in place that will enable us to do that. So I don't want anybody to walk away with the call thinking that we're going to see revenue growth without EPS growth because that certainly not going to be the case.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

Okay. That's helpful, Martin. And that 30% gross margin, is that over the next couple of quarters because of the mix with the new programs and then we should see gross margin improvement after that? Or is that 30% number is sort of what you're looking at for the fiscal year?

Martin P. Slark

I think we have kind of modeled that for the year. Obviously, I think, as you know with new programs, you have startup costs and obviously what we need to see as we get some more volume under our belt is what can we do with operational improvements to drive better margins. And I think we're in a better position to comment on those when we get into the second quarter.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

That's fair. And then on the outlook for distribution, we're seeing weak numbers from the public distributors, weaker than normal here. They all look like they're ratcheting down inventory, yet again. What are you looking at in terms of distribution orders going into the next quarter, and what are you seeing in terms of point-of-sale versus what they're ordering from you?

Martin P. Slark

What we've seen is that back-end of last year, as you know, there was a big inventory correction going into the end of the calendar year. Then we saw some restocking taking place in the March period, coming out of that quarter. But now we've seen distribution orders slow down again coming into the summer. I would say the distribution inventories that we have good visibility on are in great shape. I mean, there's not a lot of build up there, but there's also not much confidence given the economic climate, I think to add inventory. So what we're really seeing is pretty parallel POP, POS numbers. So I think what we've seen in distribution growth is going to be a function of what happens to the end economy.

Operator

And your next question comes from the line of Anil Doradla with William Blair.

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

Couple of questions. Martin, clearly, there seems to be an incrementally positive tone on the end market recovery and you've made some comments around distribution too. But can you explain how much of it is driven by inventory buildup versus seasonality versus new product cycles in your business? And I have a follow-up.

Martin P. Slark

Sure. Anil, good question. I think, none of it I think is, we believe, is inventory build up because I think what we saw happen was, now with the benefit of hindsight looking back, I think coming out of the financial crisis, everybody overcorrected on the upside and we saw that correct going into Christmas. I think as you saw our own inventory days came down in June, as did the vendor manage inventory we have is now only at 30 days, which is exactly where it should be. So I don't think there's any under-inventory there or over-inventory there. So I think, any growth you get as a result of inventory going in is going to be based on in sales. And I think, we have seen -- typically, we see this quarter being up 2% to 3%, so we're clearly seeing some normal seasonal growth in the consumer markets and the markets that build into Christmas. And then I think, we've got on the top of that, the launches of some of these new products, which is why we're projecting a growth rate that's higher than the normal seasonal trend I think you're normally seeing in the market at this point in time. So I'd say it's a combination of new product launches and typical seasonal growth.

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

And these new product launches, is this a multi-quarter launch or is this going to be a 1 quarter benefit?

Martin P. Slark

No. No. I think it's several different projects in different end markets, which benefited our bookings in the fourth quarter. And we believe it should continue throughout the year.

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

Okay. And finally, on the infrastructure side, there's been a lot of concern about China, especially wireless infrastructure. Can you put that in context of what you're seeing in terms of the 3G/4G build-outs especially...

Martin P. Slark

Yes. The infrastructure market obviously was weak last year. I think everybody has shown those numbers. What we saw was a continued weak through the second half of our fiscal year. And we saw a slight pickup in bookings in May and June. It appears as tough, that market has at least stabilized. And the good news now, of course, is we're going to have weak year-over-year comparisons given that last year was not a great year. And then clearly, I think, that there's not the same impetus that there was in that market in the past, but there's still going to be new deployments I think in developing markets and the need for capacity expansion. I mean, they can't delay those investments forever. But that market, clearly, didn't give us the same growth that it did in the previous 2 fiscal years.

Operator

Your next question comes from the line of Sherri Scribner with Deutsche Bank.

Sherri Scribner - Deutsche Bank AG, Research Division

I just wanted to get a sense for the full year guidance that 8% to 10% expectation. I think, and I just want to clarify, you said auto would probably be up 10% in fiscal '13? And then with the new programs in mobile and infrastructure, would you expect the telecom segment to be up significantly more than 8% to 10%? Just trying to understand the split of business?

Martin P. Slark

Yes. Sherri, we tried to give some kind of macro guidance for the full year just to give people some help with their overall modeling. We've not sort of broken it down by specific end markets. What I can tell you, I think, as we go into this year, our assumption is that automotive will continue to be strong, and that should be of no surprise to anybody. We think unlike last year, we're going to see a much stronger year in the telecom market for us, particularly driven by the smartphone sector. And then we think we'll see some better results in the infotech sector just because of new product launches there as well.

Sherri Scribner - Deutsche Bank AG, Research Division

Okay. Some of the new products in the second half of the year, are those in infrastructure or infotech also?

Martin P. Slark

Infotech.

Sherri Scribner - Deutsche Bank AG, Research Division

Okay. And then for those new projects again. It sounds like it’s just one customer in the mobile segment, whereas in Infotech, you're expecting there's multiple programs that are ramping, is that right?

Martin P. Slark

We had in the fourth quarter some initial bookings, which is why I think you saw that positive book-to-bill ratio across several key customers and several end markets. And so I think, that's what’s given us the confidence relative to the growth rate for this year.

Sherri Scribner - Deutsche Bank AG, Research Division

And then just circling back on the gross margin question. I mean, at these revenue levels, your gross margins are below where you've been in the past despite some of the operating improvements and the fact that gold and copper is less of a headwind for you now. I'm just trying to get a sense of when do we get back to the sort of 30%, 31% type of gross margins and what do you think about your past operating margin targets of 14% as we move into fiscal '14?

Martin P. Slark

Let me give you a couple of comments on that and I'm sure Dave can probably add to it. I think, if you look at the gross margin, our expectation, I think, is that with new product launches between now and Christmas, particularly in these more complex assemblies and with the purchase component part of it, our goal is to try and target that 30% gross margin. I think in the second half of the year, when we got some higher-end products that are also launching, that's the opportunity potentially to expand those gross margins again. And I would say what drives the margin today is really a function of the types of products we're selling and the end markets they're in. The end market mix makes a big difference, obviously, because some end markets are more profitable than others. And I would say relative to the 14%, I think if we see any kind of economic recovery, which obviously would result in our core base business growing and our basic core connector business is growing. We've not given up on that target whatsoever. Our goal, obviously, I think and some of the reasons we're driving these new initiatives this year is, we don't think there's going to be a lot of economic growth this year, so we're figuring out appropriate ways to grow with our major customers with these new opportunities. But I think when the economy starts to recover, that base business recovers as well, some of that core component business, we haven't given up on that target whatsoever. But I think, clearly, this year is one of potentially flat margins but good growth relative to market growth.

David D. Johnson

We've had an opportunity to take on some really interesting projects that we thought long and hard about the margin profile of this. And if you strip away the purchase component parts, our margins are very good on this business. So that's the first thing, I think I'll say. If you look at the base business, our margins are incrementing in fiscal year 2013 or we expect them to. So our focus has not gone away from margin expansion. That will always be key to us but we've taken this opportunity to grow our business in what we think is a very profitable way. And we've made that decision that will result in relatively flat margins for this year, but then we would get back to growing margins in fiscal year 2014.

Operator

Your next question comes from the line of Shawn Harrison with Longbow Research.

Joseph Wittine - Longbow Research LLC

It's Joe Wittine on the line for Shawn. I think we've spoken about the wins in a lot of detail. If you look at the core consumer business, let's say, I was a little bit surprised to see you guys having somewhat bullish tone; that we're seeing some consumer or Christmas-related ramps at this point, it's a little bit -- it seems like a little bit more positive than what other supply-chain companies are saying. So I guess if you look at the core consumer business, are you seeing true organic growth rate now? And I say that because I think last year, some of the growth didn't actually materialize as we originally thought it was in the back half of last year. So I'm just kind of curious on your view on core consumers/Christmas builds?

Martin P. Slark

Sure. I think, when you look at the consumer sector, obviously, the last 12 months, that's probably the end market that was most impacted by the economic climate around the world. The single biggest thing that was weakest in the last 12 months was the TV sector, particularly the LCD part of that. And I think you've seen, you've looked at some of the results of the major Japanese consumer electronics companies and they had some pretty disastrous periods over the last 12 months. I think between the challenges in Japan and the fact that, I think, the incentives in Asia and China went away for buying those goods. I think the good news now is we now coming of a relatively low base. What we're at least seeing now is new product launches going into Christmas. We've seen the appliance market stay fairly stable. We've seen the plasma display, plasma TV market start to increase a little bit sequentially, which is helpful. The digital still camera market has been good some. As had some of the gaming markets, particularly Pachinko for us as it goes into Christmas. But if you look back a couple of years ago, I think, Consumer is still not where it was at the peak of the recovery, but I think relative to what we've seen the last 6 months, it's coming off a low base.

Joseph Wittine - Longbow Research LLC

Okay. And then I don't know if it's possible to do, Martin, but could you back up the wins and say what the book-to-bill ratio would be? Would it still be above parity? Meaning the specific, I mean the smartphone and infotech wins would -- kind of trying to stay on an organic basis. How would the book-to-bill look versus typical this time of year?

Martin P. Slark

Yes. It would be really hard to do because, obviously, those wins are with the same major customers we sell to all the time. But probably, I'd say close to parity.

Operator

Your next question comes from the line of Wamsi Mohan.

Ruplu Bhattacharya

This is Ruplu, filling in for Wamsi. I just wanted to ask you about your CapEx plans for fiscal '13. I think on the last call, you had mentioned potentially expanding into Korea, China or the Philippines. So how do you think about CapEx going forward?

Martin P. Slark

Let me tackle what it is we're investing the money on, and Dave can give you some exact data points. We are part the way through expanding our operations in Korea. Obviously, Korea is a very important market given the success of some of the key end customers there. We are opening a new plant in the Philippines next March, which is important to us too. We have doubled the size of our facility in Vietnam. And we're expanding the plant in -- one of our plants in China. So there is some capacity bricks and mortar expansion going on. Some of it also diversified dependence out of China. We're building a larger tooling facility in China, which is important as well. So I think that distorted some of that CapEx on those buildings, distorted some of that CapEx as a percent of revenue in Q4, but Dave will talk about, I think we're going to maintain the same kind of percent of revenue ratio we've talked about in the past.

David D. Johnson

That's right. Our target of 6% to 7% is still effective. We were at 6.5% in the last year and we had higher CapEx in Q4 because of our new product launches. We'll probably have higher CapEx in Q1, also because of that. But still overall, we'll be in the 6% to 7% range.

Ruplu Bhattacharya

Okay. And I was just wondering if you can give us an update on the Focus Accounts Program? How many companies do you have in there and what do you see as the future for that program?

Martin P. Slark

So, it's now about 100 customers. If you looked at the original list that we started with, the 52 we started with, at the end of last year day, they represented about 35% of our revenue, up from 17% when we started the program in fiscal year '08. And so we've expanded that and we put a lot more focus now on medical, military and industrial markets because obviously, we'd like to grow in those lot higher-mix, lower-volume, higher-margin type markets as well.

Operator

Your next question comes from the line of Brian White with Topeka Capital Markets.

Brian John White - Topeka Capital Markets Inc., Research Division

Martin, on the margin profile on these new projects, just remind me why they're different than past new projects that were ramped? Is it a different type of assembly? Why would it have such an impact on margins?

Martin P. Slark

Because they involve purchased components that are embedded in the end product. So Molex is using its own manufacturing to -- as we've done in the past mold insulators, stamp snap [ph] contacts, et cetera. But then, we are embedding other components, which we're buying on the outside into those end products that sold to the customer. And obviously, you make more margin on the things you make yourself versus the things you buy from the outside and embed in the end part.

Brian John White - Topeka Capital Markets Inc., Research Division

Okay. And why are we embedding components in these assemblies versus...

Martin P. Slark

.

Because the design of the product itself involves a more complex assembly both in terms of shielding, et cetera. And so there's a number of design features relative to these end products that involve purchased components that we have not typically done in the past.

Brian John White - Topeka Capital Markets Inc., Research Division

Okay. And when you think about the September quarter and these new ramps, I just want to get a feel, is this more of a tablet or ultrabook or smartphone? What's the bigger driver of those 3?

Martin P. Slark

We have not been specific about end markets and we're not going to get into that level of detail in terms of which application, which customer. I think we have a responsibility to disclose the types of new wins we're getting and the rough end markets. The only thing I can tell you, as I said earlier in the call, I think that they are generally in the smartphone area earlier in the year, and then in the infotech market later in the year with some high-speed products. So I'm not going to get into more specifics than that.

Brian John White - Topeka Capital Markets Inc., Research Division

Okay. And are you seeing the ultrabook ramp, as we move into the September quarter or you're not participating in that market?

Martin P. Slark

We are seeing that and we are seeing, I think, a lot more competitive products come out in both the tablet area and in the ultrabook area. And I think obviously, one of the key macro trends over time is going to be, you must have the same thing that I have seen. When you go through airport these days, you see people get out laptops, tablets, cell phones. There has got to be some consolidation in the types of devices that people carry around with them. And I think that consolidation into a smaller number of platforms. And I think also, the trend we're seeing now in Molex is typical of this, where we're telling employees to be basically bring their own device to work is changing somewhat the landscape of what devices people buy in the corporate environment.

Brian John White - Topeka Capital Markets Inc., Research Division

Okay. And just finally on the gross margin, you gave us gross margin thoughts on fiscal '13 as 30%. In operating margin, what are we -- you said, 12% for the year?

David D. Johnson

We didn't say. We gave you some guidance on the gross margin and some thoughts on SG&A. But we're not giving full year guidance for fiscal year 2013.

Brian John White - Topeka Capital Markets Inc., Research Division

Okay. Why not? You gave revenue, you gave gross margin?

David D. Johnson

And we gave some ideas on SG&A. Did you hear the discussion on SG&A?

Brian John White - Topeka Capital Markets Inc., Research Division

Yes. But why not comments around operating margin? We always gave in [ph] the best, right? We had a target of 14%?

Martin P. Slark

No. We didn't because I think there's a lot of uncertainty out there, both in terms of the economy and the launch of these programs. And I think we've tried to give very specific guidance for the quarter. And our plan is to continue to do that because I think there's a lot of variables out there. And let's face it, if you look at the macro trends in our industry, a hell of a lot can change in 12 months. So I think when someone is going out 12 months, they're largely guessing anyway.

David D. Johnson

And Brian, I'm not trying to be evasive, so let me just say that the fiscal year '13 will be roughly at the same level as fiscal year '12.

Operator

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

Jim Suva - Citigroup Inc, Research Division

Could you just help me understand a little bit more the perceived disconnect on the September sales outlook versus the September EPS outlook. I think the reference point is kind of a more year-over-year. It looks like -- and I guess, quarter-over-quarter, it looks like that things just -- maybe it's the gross margin or the new wins, maybe it's higher SG&A. It's just as interesting to note that the sales level, as well as the EPS level quarter-over-quarter and year-over-year don't quite match up you. If you can just help clarify that and I have a follow-up.

Martin P. Slark

Sure. I think, Jim, we're talking about at the midpoint, roughly a 7% gain in revenue. So I guess, that's what you're referring to, if you look at that. And if you look at the midpoint of the EPS, we've given a range there between 37% and 41%. I think the point you're probably referring to is that when Molex last time was up at the $930 million range, we had a gross margin there that was 31.3%, that was the first quarter of last year. Our expectation, I think, this year is that the gross margins aren't going to get that high, they're more likely to be in the 30% range. So we think what you're looking at is a picture of growth, which will be above the market and above the normal seasonal trend. Gross margin is basically being maintained at a similar level, continued, I think, what you would agree is good control of SG&A. But I think relative to a year ago, not the same kind of EPS that we had at the same kind of revenue level, largely because of the gross margin compression.

David D. Johnson

And also a year ago, that was our record quarter in revenue. We had record year in 2011, a new record quarter in Q1. So all that leverage went into that Q1 results. And then we've seen quite a pull back in terms of demand over the last 3 quarters. And now it's this incremental business that we're bringing on that is really the difference.

Jim Suva - Citigroup Inc, Research Division

And is there incremental SG&A cost with this new business? Because year-over-year, your SG&A would be about flat on lower revenues?

David D. Johnson

There is some incremental SG&A cost, but it's not in par with our usual SG&A spending.

Martin P. Slark

Most of the startup costs obviously show up above the gross margin line, but you've got the incremental engineering costs and the SG&A.

David D. Johnson

And I just want to clarify, in terms of the margin profile of this new business, these are not commodity, low-margin products. These are very good complex products business for us. And as I said, when you strip away the purchased components, the margin is very good, but it's the purchased component that results in the margin profile.

Jim Suva - Citigroup Inc, Research Division

A then a couple of housekeeping questions. Is a long-term tax rate kind of 30% to 32% good? Or does this new programs impact that? And then for use of cash, is it fair to say that you'd be looking at that more for growing the business? Or how should we use it -- use of cash as your cash is in a very healthy position?

David D. Johnson

The long-term tax rate is probably closer to 30% and we are still -- we've made some very good progress on several aspects of our tax rate. And we hope over time, that we can bring that down a little bit. It of course, depends upon the mix of earnings.

Martin P. Slark

I think that in terms of the cash, I mean, our priorities would be, obviously, reinvestment back in the business, which we got more than enough cash to do and maintain the dividend. I think you heard the comments I made in the call about our commitment to that and maintaining that payout ratio. And then, I think, in terms of acquisitions, you know we've added some new talent into our business development area. And I'm excited about the pipeline of opportunities we have in the acquisition area. We made one acquisition in each of the last 2 years, Luxtera 2 years ago and active optical components and then Temp-Flex and specialized cable, this year. And I would hope that, that rate of acquisitions would actually increase this year, given the pipeline that we're looking at. And so I think that's another upside for us as the year goes on. And clearly, we put [ph] up tremendous financial capability to be able to execute on those opportunities.

Operator

Your next question comes from the line of Craig Hettenbach with Goldman Sachs.

Craig Hettenbach - Goldman Sachs Group Inc., Research Division

Just following up on the integrated products. Can you talk about how this could potentially change any customer concentration, as you move forward in terms of revenue? And then also, just maybe where your capabilities stand today and how you think the industry might evolve this front looking out.

David D. Johnson

I think, Craig, I mean, one of the interesting things to highlight is this, as you go forward in our industry, I think you're going to see 2 macro trends. I think one is, as you've seen contract manufacturers take on, in effect, the production of complete product line for customers. One of the pressures I think on component companies is not just to supply the component, but to supply the assembly that it's part of. And so I think that trend continues. And I think what you're also seeing is with the demands for downloading data at faster rates, you're going to see more complex connector products with embedded active devices. And what that means, I think, is bigger chunks of revenue going to those customers, but also slightly different margin profiles when you sell those. Obviously, I think if we end up selling bigger dollar amounts to key customers, ultimately, those customers could become more critical to us. But I think we've got a number of opportunities across a number of customers. So I think our business will remain very diversified in terms of both the customer and the end markets we service. I think we have a very good spread by end market, by customer. And I don't see that being changed dramatically, but you could see bigger chunks of revenue being added to key customers as a result of these programs.

Craig Hettenbach - Goldman Sachs Group Inc., Research Division

Okay. And then if I could follow up on the use of cash as you go forward, I know you guys have talked for a number of quarters about looking at M&A, does this change that though? It sounds like you have a very strong revenue opportunity for these integrated products. Just curious how that might change your view of [indiscernible] M&A or how are you going to approach that given, it looks like you have some robust revenue growth coming?

Martin P. Slark

No. Actually, Craig, I think it's completely the opposite. One of the things we've talked about as a management team, is that if you look back at Molex's history, and you've highlighted this yourself several times. We've always grown very rapidly coming out of economic downturns, I think, largely because of our dependence more on consumer markets than other companies. But then, of course, when the market has slowed down, we tend to go down with the market. And we've kind of tracked that over 30 years and we've said, we wanted to look at ways, in which we could grow significantly faster than the market overall. And I think there are various levers that we can pull. I think we have demonstrated over a long period that our organic growth with reinvestment back into R&D, is faster than market, we intend to continue to do that. We intend to look at more of these complex value-added opportunities where they are appropriate, but only where we've got good engineering content with key customers where they have appropriate margins. We are going to do more in the M&A area, which is why we beefed up the business development function here and have a better pipeline. And we'll continue to fund some of the new venture opportunities that we have done. We are now doing an over -- we're targeting this year over $1 million a month, for example, with our LED lighting products. We're doing a lot more with the SNES [ph] initiative in Japan and we had a very successful innovation challenge across the whole company that highlights some other new business opportunities for us as well. So really, just want to have different ways of getting growth in the company, because we think with our new cost model, if we can drive more consistent faster growth in the top line, relatively we're going to see faster EPS growth. And that's really the strategy.

Operator

Your next question comes from the line of Anthony Kure with KeyBanc.

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

Just wanted to clarify on the 8% to 10% sales growth, that is sales growth, correct? And just what there is that volume and if it is sales, what assumption of price concession is in there? Is it that 3% that you talked about?

Martin P. Slark

Yes. It is sales growth, so I think, net of price erosion. And we would have assumed in that model, roughly a 3% price erosion.

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

Okay. And I think it was articulated what the -- at least what some numeric items, what the auto growth expectation was. And I didn't quite catch it, so I apologize. I think you said 3% to 5% production or unit growth. And then with the content gains, where -- what was that number that you threw out there as far as expectation?

Martin P. Slark

We said 3% to 5% unit growth. And we think we are assuming that vehicle production around the world is going to grow from roughly 80.5 million vehicles this year to about 83 million vehicles in calendar year '13. So we're obviously spread across those 2 years. And this year is up 80.5 million versus 77 million last year. That's the numbers that we have. And then we assume with content it gives us the opportunity to grow 5% to 10%.

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

Okay. 5% to 10% that was what I was looking for. Okay. And then finally, just as far as the trends by region in the fourth quarter, specifically in Asia, was there any notable differences? I know you normally dissect North and South Asia, any notable differences there?

Martin P. Slark

Yes. I would say Asia-Pacific, South was sequentially stronger than Japan. Obviously, Japan and Korea are the 2 markets for us in APN. So APS continues, I think, from an underlying perspective to be stronger. I think that the strength of some of the customers in Korea is actually helping that -- what is in our APN region as well. But generally, the reason we didn't put our specific table in is that we had a lot more commentary about the full year. And I think the trends by geography were pretty obvious. It was weak in Europe, okay in the Americas and stronger in Asia.

Operator

Your next question comes the line of Michael Wherley.

Michael J. Wherley - Janney Montgomery Scott LLC, Research Division

It's Janney Capital Markets. I just want to follow-up on the Focus Accounts. I think in fiscal 2011, you said that, that core group of Focus Accounts had 46% revenue growth. And I realize that probably you couldn't meet that again in '12, but do you have a figure for 2012 growth for core Focus Accounts?

Martin P. Slark

Yes. This is a real rough number. I'm doing this off the top of my head because I had a meeting with the head of sales and marketing yesterday and we are looking at some of the customers that did well and some of the ones that didn't. Buried within that -- our overall business, obviously, was flat year-over-year if you look in total. If you look at those Focus Accounts, they were up about 3%, 4% overall. So obviously, they did better. And within that lift, we had some that were up dramatically and some that were down consistent with the end markets that we talked about.

Michael J. Wherley - Janney Montgomery Scott LLC, Research Division

Okay. And then just going back to the new project wins, you talked a little bit, Martin, about how you feel about the balance of your sales to the various OEs. And I'm just wondering if even in that smartphone market, if you feel like you have pretty good balance among the customers?

Martin P. Slark

I think we have a pretty good balance. I mean, obviously, as you know, the landscape there is changing dramatically with some people who were dominant players 2 or 3 years ago, really struggling. I would like to see us -- well, one of the reasons, I think we are expanding a plant in Korea or we've like to further our strength in our position in Korea, we have good product opportunities there and good design in wins. But I think we would like to build that up some more. Because I think when you look at the environment going forward, it's pretty apparent, I think, that you're going to see the iOS platform continue to be successful, the Android platform be successful. And I guess, the jury is still out on whether Windows 8 and its partner is going to succeed. And so it's hard to imagine anything outside of those 3 platforms are going to be successful. And our key is to make sure that we are selling to everybody in the successful platforms. And I think we've been going through a transition where some of the previous winners are not doing as well and we have to change our mix to meet that.

Michael J. Wherley - Janney Montgomery Scott LLC, Research Division

Okay. Great. And then just lastly on M&A. I was just wondering if you could talk about any of the specific end markets that you're looking at in particular.

Martin P. Slark

Yes. We are looking at, from a market perspective, the medical, the military and industrial markets. From a product perspective, we're looking in the RF area and we're looking at some cable products, so we could backward integrate some of the cable products. And then some other specific narrow niche technologies, but I think that probably gives you a broad idea of where the focus areas are.

Michael J. Wherley - Janney Montgomery Scott LLC, Research Division

And are you seeing that there is more activity on your M&A team? Are you getting closer to anything or any more commentary there?

Martin P. Slark

Yes. I think we are. I think one of the hard things in M&A is obviously to predict the timing particularly, when you are often talking about private family-owned companies, et cetera. But yes, I think you'll see more done this year than we have in the last 2 years.

Operator

Your next question will come from the line of Amitabh Passi with UBS.

Chelsea Shi - UBS Investment Bank, Research Division

This is actually Chelsea Shi on behalf of Amitabh. So my question here is, I heard the SG&A increase to $14 million and $9 million of them is due to foreign currency. So just apologize if I missed that, is that referred to June quarter or fiscal year 2012?

Martin P. Slark

That was for the full year. So our SG&A for the entire year was up $14 million, of which $9 million was foreign currency. So the actual profit increase within the company was only $5 million, which is why we made the comment, I think, that in previous slowdowns, people who have seen our SG&A expand significantly whereas, I think, it was very well controlled in the last 12 months.

Chelsea Shi - UBS Investment Bank, Research Division

Right. Got you. So could you remind us how the dynamics works between the foreign currency and the SG&A, like to how much part is still to yen and how much is still to Chinese RMB and euro?

David D. Johnson

I'll try to give you -- on a year-over-year basis, the dollar was weaker versus most of the currencies. So for us, of course, the yen and the RMB are probably the most significant factors. And the yen was stronger by about 6% year-over-year for the full year and the RMB was stronger by about 4%.

Martin P. Slark

And I think if you just -- round number the terms, roughly 15% of our sales are in Europe. So think about that percentage of our revenue is being dependent on the euro. And then think about 25% to 30% of revenues in China being dependent upon the renminbi. And then I would say, roughly 20% in Japanese yen. Just to give you a rough ballpark of the mix.

Chelsea Shi - UBS Investment Bank, Research Division

Okay. Got you. And then just a follow-up on -- you mentioned about the expansion in South Asia. And do you foresee more exposure in terms of the labor cost in that region? Or for example, specifically, the labor cost to increase in China or it could be still a very small part of the -- of your forums [ph] There.

Martin P. Slark

No. That's a great question. And honestly, it's really not a decision that Molex makes. Often, it's a decision we make based on what our customers are doing. But what I think we've seen happen is that with the labor rates in China going up by roughly 15% to 20% a year, the expectation is that it's going to continue. And I think relatively high turnover rates of labor and perhaps a more challenging labor environment in China, generally. We've seen a couple of things. One is, our end customer diversified their dependence on China and expand in other Southeast Asian countries. And we've also seen some products that have a high-weight-to-value ratio that are resold in North America and Europe being moved back. So I think customers moving to other geographies is what's driving some of our expansions there and decreasing our total dependence on China. And then I think things moving back to North America and Europe is also having an impact there as well. But I would still say that, obviously, China remains a very important market. But I think more of our expansion there is based on supporting local demand.

Operator

The next question comes from the line of Alek Gasiel with Barrington Research.

Alek B. Gasiel - Barrington Research Associates, Inc., Research Division

Most of my questions have been answered, but I wonder if you could provide us an update on the Japanese litigation?

Martin P. Slark

Sure. It's ongoing. We had the witness examination phase of the legal process there. And that was completed. The next hearing in Japan is in September. And I would say, we would hope to see some sort of resolution in the medium to near term. The legal process has been continuing there. We're going through the court case. And the facts of the matter really haven't changed, so I would hope that we would get some resolution in the foreseeable future. The legal process there is obviously slow like it is everywhere else.

Martin P. Slark

Okay. That's the last call we have on the waiting line here. So I'd like to thank everybody for calling in. Obviously, we're available for follow-up questions. And thanks very much for your attention this morning. Thank you. Bye-bye.

Operator

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

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