Mike McNamara - CEO Thomas Smach - CFO

Bernie Mahon - Morgan Stanley Todd Coupland - CIBC World Markets Alex Blanton - Ingalls & Snyder Louis Miscioscia - Cowen and Company Jim Suva - Citigroup Kevin Kessel - Bear Stearns Tom Dinges - J.P. Morgan Brian White - Jefferies & Company

Good afternoon and welcome to the Flextronics Second Quarter Earnings Conference Call. All lines will be on listen-only until the Q&A session of today's conference. (Operator Instructions). I would now like to turn the call over to Mr. Mike McNamara, Chief Executive Officer; thank you sir, you may begin.

Okay thank you. Ladies and gentlemen, thank you for joining the conference calls to discuss the results of Flextronics' Second quarter ended September 30th, 2006. To help communicate the data in this call you can also view a presentation on the internet. Go to the Investors' section of our website and select calls and presentations. You will need to click through the slides so we will give you the slide number we are referring to. On the call with me today is our Chief Financial Officer, Thomas Smach. I will turn the first part of the call over to Tom to go through the finance portion of prepared remarks. I will then provide some commentary along with guidance, and then open it up to questions. Go ahead, Tom.

Thanks, Mike, and good afternoon, ladies and gentlemen. I'll begin with Slide 2. Please note that this conference call contains forward-looking statements within the meaning of the US securities laws, including statements related to the positive net cash generation from our disposal and leasing activities; demand trends in revenue and earnings growth opportunities; expected improvement in our inventory turns and levels; the success of our vertical-integration and broad-based growth strategies; our ability to add capacity and develop our design capabilities; the expected returns from the cash received from the divestiture of our software development and solutions business and the success of our long-term initiatives and related investments. These statements are subject to risk that can cause actual results to differ materially. Information about these risks is noted in the earnings press release on Slide 14 of this presentation, and in the Risk Factors and MD&A sections of our latest annual report filed with the SEC, as well as in our other SEC filings. These forward-looking statements are based on our current expectations and we assume no obligation to update these forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements. In addition, throughout this conference call we will use non-GAAP financial measures. Please refer to the schedules in the earnings press release, Slide 7 of the slide presentation and the GAAP versus non-GAAP Reconciliation in the Investor section of our web site, which contain the reconciliation to the most directly comparable GAAP measures. Slide 3; revenue from continuing operations in the September quarter amounted to $4.7 billion, which is a record high quarterly revenue result for Flextronics, and represents an increase of 23% or $894 million over the year ago quarter. On a sequential basis, revenues from continuing operations increased $643 million or 16%. Slide 4; computing decreased $43 million sequentially and represents 12% of total September quarter revenue. Consumer digital increased sequentially by $181 million or 21% and represents 23% of total September quarter revenue. Infrastructure increased sequentially by $66 million or 6% and represents 23% of total September quarter revenue. Mobile increased sequentially by $379 million or 33% and represents 32% of total September quarter revenue; and Industrial, Automotive, Medical and other increased sequentially by $60 million or 14% and represents 10% of total September quarter revenues. Our top ten customers accounted for 68% of revenue in the September quarter with only Sony-Ericsson and HP exceeding 10% of the total. On a geographical basis, Asia increased sequentially for 62% of total revenue, Americas remained at 22% and Europe decreased to 16%. Slide 5; on a sequential basis, gross margin improved 10 basis points to 5.9%. SG&A as a percentage of sales remained flat at 2.8% and operating margin was 3.1% which represents a 10 basis point improvement over the core EMS operating margin in the year ago quarter. Slide 6. Excluding gain on divestiture, amortization, restructuring, and other charges, which includes stock-based compensation, quarterly net income amounted to $117 million which is a September quarter record, and is a 15% increase from the year ago quarter. This resulted in earnings per diluted share of $0.20 in the current quarter compared to $0.17 in the year ago quarter. Slide 7; after tax amortizations, restructuring and other charges amounted to $103 million in the quarter compared to $76 million in the year-ago quarter. As previously disclosed, the company reported an after tax impairment, lease termination, exit cost and other charges of approximately $83 million during the quarter ended September 30th, 2006, primarily related to the disposal and exit of certain real estate owned and leased by the company in order to reduce its investment in property, plant and equipment. These activities are expected to generate positive net cash of approximately $15 million through disposal and leasing activities. The after tax gain on the divestiture of the software business amounted to $171 million in the quarter compared to an after tax loss of $28 million on the divestiture of the semiconductor and network services businesses in the year ago quarter. After reflecting these items total GAAP net income for the current quarter amounted to a record high of $185 million compared to a loss of $2 million in the year ago quarter. This resulted in all time record high GAAP earnings per diluted share of $0.31 in the current quarter compared to zero EPS in the year ago quarter. Slide 8; return on investment capital improved a 150 basis points to 11% from 9.5% in the year ago quarter, while ROITC increased 210 basis points to 29.1% from 27.0% in the year ago quarter. We are obviously very pleased with the continued improvement in ROIC. We continue to run the business internally based on ROIC, and we only use ROITC for external benchmarking purposes as unlike Flextronics many of our competitors have written off their intangible assets, goodwill, and deferred tax assets. Slide 9; cash increased a $154 million sequentially to over $1 billion, about total debt decreased $66 million sequentially. As a result, net debt decreased $220 million sequentially and amounted to $701 million at quarter end. Including the revolver availability, total liquidity was approximately $2.4 billion and the debt-to-total capital ratio was 24% at quarter end. Slide 10; Cash conversion cycle came in at 14 days versus 16 days for the year-ago quarter. Slide 11; in the September quarter, depreciation and amortization amounted to $82 million and net capital expenditures were $195 million. Cash flow from operations generated $49 million in the quarter, despite an inventory increase of $371 million. We do not believe the inventory increase resulted from softening demand that will hurt our future revenue expectations. The inventory increase relates primarily to the anticipated revenue growth in the December 2006 quarter. In addition, as we have previously discussed, Nortel is an extremely large, complex, low-volume program that was expected to increase our inventory and compress our inventory turns. Now that Nortel -- now that the Nortel transition and integration is complete, we can now start with a continuous improvement phase of that relationship. We have specific action items to reduce our overall inventory for all customers by $300 million to $400 million over the next three quarters. Thank you very much ladies and gentlemen, as you are trying to turn to slide 12, I will now turn the call over the Mike McNamara.

Thanks, Tom. I am going to be rather brief in my commentary because we are hosting an analyst and investor meeting in two days on October 26 in New York City, and we plan on getting into a much more strategic overview of the company. The management presentations will begin at 12:00 PM Easter, a live webcast of the presentations will be available at www.flextronics.com. I will limit my commentary today for the financial results for the recently completed September-quarter. Obviously we are quite pleased with those results. Revenue from continuing operations reached a record high and increased 23% on a year-over-year basis and increased 16% on a sequential basis while non-GAAP net income increased by 15% on year-over-year basis and increased 12% on a sequential basis. Operating margin in the Core EMS business improved 10 basis points on a year-over-year basis and gross margins improved 10 basis points sequentially. We ended the quarter with over $1 billion in cash and ROIC improved 150 basis points during the quarter to 11%. Our growth is very broad-based. We are continuing to add capacity in China, India, Malaysia, Ukraine, Brazil and Mexico to support the growing manufacturing requirements. In addition to a broad geographic expansion, we expect to have double-digit annual growth rates in each market segment. In our verticals, we are adding capacity in plastics, metals, PBC and new capabilities in machines and LCD displays through the pending IDW acquisition which is subject to their shareholder approval. Capital expenditures in the September quarter amounted to $195 million. We expect CapEx to be approximately $450 million and depreciation to be approximately $325 million in fiscal 2007. This increased level of CapEx is required to support our forecasted 25% year-over-year growth in revenues in fiscal 2007. The ability to provide vertically integrated EMS services which include design components, manufacturing and logistics, from our industrial parts remained a big competitive advantage for Flextronics. We remain firmly committed to the competitive advantage of vertical integration, along with the continuous development of our design capabilities in each of our major product categories. We continue to make considerable investments to support these initiatives along with the infrastructure necessary to support our accelerating revenue growth. We think these investments will not only help us meet our revenue growth expectations, by yielding better profit and return for shareholders, and we will also improve our competitiveness and enhance our capabilities. As a result of focusing our efforts and resources on improving the Company's overall profitability and the significant growth opportunities in the core EMS business, we divested the network services and semiconductor businesses last year. In addition we divested the software business last month for a pretax gain of $181 million. By monetizing all of these non-core assets at an aggregate pretax gain of approximately $250 million, Flextronics has generated cash proceeds in excess of $1 billion. These proceeds will be invested to support our growth strategy. Other substantial benefits from these divestitures include more than $100 million reductions of deferred tax assets, and approximately a $1 billion reduction in Goodwill and intangibles, which significantly increases the Company's tangible equity and therefore enhances our financial position. In addition, we have retained ownership interest in both the software and the network services business, which should provide additional cash and potential future upside when monetized. These divestitures helped us to focus immensely on our core strategies, which has helped us achieve the current revenue acceleration. It is important to note that we will no longer have income from the discontinued software operations as that ended in September when the software business was sold. But we will begin to generate interest income on the $250 million PIK note we retained as part of the sale transaction along with investment returns on the cash proceeds received from the sale. And lastly, for those of you who haven't had a chance to see it yet, Nortel filed an 8-K this afternoon, just closing in among other things, that our agreement with them has been amended to restructure certain purchase agreements by Nortel. The amendment does not affect our revenue expectations under our deal with Nortel. We still expect Nortel to generate in excess of $2 billion of revenue for Flextronics. Slide 13; for the December, 2006, quarter, we are currently expecting revenue from continuing operations to increase approximately 25% to 30% on the year-over-year basis in the range of approximately $5.5 billion to $5.3 billion and diluted EPS to increase approximately 10 to 15% on year-over-year basis in the range of $0.22 to $0.23, excluding amortization and stock-based compensation. For the fiscal year ending March 31st, 2007, we continue to expect revenue from continuing operations to increase somewhere in the range of 25% on a year-over-year basis to approximately $19 billion and diluted EPS to grow in the range of 15% on a year-over-year basis to approximately $0.80 per diluted share. Obviously there's a range around these numbers and we urge you to be conservative as the economy and the demand trends are dynamic. GAAP earnings per diluted share are expected to be lower than the December quarter guidance provided herein by approximately $0.03 per diluted share per quarter for quarterly intangible amortization expense and stock-based compensation expense. Slide 14; there are real risks of operating in this business which includes a macro economic or technology slowdown among other things. Please pay particular attention to this slide in light of the current market conditions; I will now turn the conference call over to the operator for questions. Please limit yourself to one question and one follow-up. Operator?

Thank you, sir. (Operator Instructions) One moment, please, for the first question. The first question is from Bernie Mahon from Morgan Stanley. Bernie Mahon - Morgan Stanley: Hi, good afternoon.

Good afternoon. Bernie Mahon - Morgan Stanley: Question for you on the inventories; so, you built that up over the last year, probably over $1 billion. I know Tom had said obviously Nortel impacted that. Could you kind of break out how much of that excess inventory either sequentially over the last year is from Nortel, and then when you say you're going to be able to work it down 300 or 400 million over the next couple of quarters, what market is that coming out of? Is that strictly the communications market or is there other markets where you probably have some excess inventory?

Yes. So, we want to work total inventory down 300 or 400 million and that's really a broad-based, across all of our -- of all of our segments and all of our different businesses. The Nortel in particular is, we now have about $800 million of Nortel inventory, which is pretty substantial, and if we look at inventory turns themselves, they're substantially different, whether they're, Nortel-based or if they're the total company. So, we certainly -- we have programs working with Nortel to improve those, we have our own programs working to improve those. And we do -- we believe we have a good understanding of how we can get $300 million to $400 million out of this market. One of the things, to note that is just going to be a phenomenon of doing more and more vertical integration and also doing more and more of the more complex products which we tend to do more and more of as the quarters go on, is that they tend to carry a little bit lower inventory turns as a result. Not as low as what we're seeing today and we actually expect this quarter to be the turnaround quarter for us. But we think we've got good line of sight of how to get 300 or $400 million out of this. Bernie Mahon - Morgan Stanley: Okay. When you said there's about $800 million in Nortel, do you think you can get that down to $500 million or $600 million, or is it close to $600 million or $700 million over the next couple of quarters? And then just to makeup of the inventory, as you kind of increase the vertical integration, is there more kind of component inventory like semiconductors or printed circuit boards or is it more finished goods at this point?

No, the two real drivers that will improve our inventory turns over time will be the Nortel and, yes, I do believe that $500 million to $600 million is the appropriate range. That we can get to, and I think it probably takes three quarters to get there. And then the other inventory, you have to remember, a lot of the inventory that we have today is really to fund the growth that's coming up and to fund all the new programs that we're winning and bringing on. We can't ship product until we first buy it and put it into an inventory and convert it and very often put it into the hub. So, a lot what we're doing is not only supporting the new inventory -- the inventory for the new program startups, but we're also supporting just the general growth rates that we're seeing quarter on quarter. Bernie Mahon - Morgan Stanley: Okay. Thanks a lot.

Todd Coupland of CIBC World Markets; you may ask your question. Todd Coupland - CIBC World Markets: Hi, good evening, everyone. If I look at the segmented results, it looks like there was a little bit of upside in handsets from what I was expecting offset by a little bit lower telecom and consumer digital. Can you just talk a little bit more the about the trends in those three segments?

Yes. In September, it was up pretty nicely for mobile and consumer digital as you mentioned. I think our industrial automotive and medical were also really pretty strong, with the sequential 14% growth. The computing and infrastructure, a little bit slower, but they actually are the ones that are not as prone to the seasonality and they're a little bit, bringing those programs on is a little bit more measured in terms of how fast you can ramp those programs. So, I think we'll continue to see nice, steady growth out of infrastructure and computing. But they're a little bit lower than what we -- I won't say they're lower than anticipated, they are lower than the other ones, but consumer digital and mobile tend to be very seasonal oriented. Todd Coupland - CIBC World Markets: Okay. And then just in terms of the outlook for mobile, you had talked about I think 10 or 12 million units getting to that kind of run rate in 2007, fiscal 2007. Do you still feel with the programs you have that you will get there? Can you just update that view?

You mean in the ODM business? Todd Coupland - CIBC World Markets: Yeah.

Right, actually we're expecting more than 10 to 12, we are expecting more like 15 to 17. And I think what we were targeting for next year, actually we're not targeting, I think what we were mentioning is probably about 30 million next year. And we think those are both pretty much on target. I mean, there's a little bit changes around those, but I'd say those are substantially close to target. Todd Coupland - CIBC World Markets: Okay, great.

Thanks a lot.

Alex Blanton of Ingalls & Snyder; you may ask your question. Alex Blanton - Ingalls & Snyder: Hi, good afternoon.

Good afternoon. Alex Blanton - Ingalls & Snyder: On the seasonal, I mean on a quarterly basis, quarter over quarter, your seasonality is carrying your sales up $500 million, at the midrange in the December quarter. What are the biggest drivers of that, do you think, Michael? In the 500 million, what's going up the most, quarter-over-quarter?

Well, quarter-to-quarter, we're having real good successes in our mobile phones, of course. We've got a pretty big program win that recently came on with Kodak and Juniper starting up. We have a number of programs, we really haven't announced yet, that we'll see take it up. But overall, even to take out the seasonality if you look on a year-over-year growth rate, we're still anticipating everyone of our market segments to have well over double-digit growth rates. It's really pretty broad-based. And the other thing that's broad-based is the geographic footprint. So, what we said in the -- in the comments that Tom made earlier is that we're seeing both Asia being pretty steady or growing a little bit and America is actually keeping up with it. So, we're actually seeing some pretty good geographic growth out of the Americas and it's actually keeping up with the growth rate that's occurring in Asia, in terms of a percentage basis. So, we're seeing broad geographic growth, we are seeing broad segment growth and the other thing is we're also adding capacity in plastics, metal, PCBs in the assembly business, so we're, even on the particular commodities, we're seeing pretty broad-based growth there. It's not just one thing and it's pretty even, pretty balanced with the exception of mobile and consumer digital being picking up the seasonal trends. Alex Blanton - Ingalls & Snyder: Okay. And now on those new programs, what kinds of products are you talking about? Are you doing -- have you one new set of box programs; for example, have you got new cell phone? What kinds of, are we looking at? Why haven't you announced them?

Mostly because we haven't pushed our customers to announce them. Alex Blanton - Ingalls & Snyder: Okay.

And our customers aren't excited about doing them. But over the course of, say, the last six months, we picked up three really nice set-top box deals. Obviously with a 33% growth of mobile this quarter, we've not only seeing some incremental demand out of existing customers, but there's some additional demand that's coming in. Either new program wins from the existing customers or new customers. But we still haven't been pushing our customers real hard to make the announcements and that most of them are sensitive about that. And we also have a pretty good hiccup in cameras. Both in -- we have got into the business to do all the whole wide digital still cameras that we did do the announcement on the Kodak cameras, which are pretty substantial programs, so the digital still cameras alone are probably running close to 20% of worldwide market share in those. So, all of those are really contributors. Alex Blanton - Ingalls & Snyder: 20% market share. Thanks, Mike, we'll see you on Thursday.

Louis Miscioscia from Cowen; you may ask your question. Louis Miscioscia - Cowen and Company: Okay. Thank you. Mike, could you get into more detail in the computing sector? I guess you have desktop PCs, notebooks, servers in there; is there anything that is sort of was dominant, I guess looking like you had a pretty weak quarter on a quarter-to-quarter basis?

Yes, we actually had some -- I think we're in a product transition on some of our stuff. And I think that was a little bit part of it. But we just didn't have any upside. We really didn't have much strength in the computing business. We had, like I said, we were in a product transition on one of the products which probably impacted probably $30 million or $40 million -- probably $30 million of business that we will pick up this quarter. But in general, it hasn't been a rapidly growing segment for us. We're doing a lot of investments in that area. We brought in a company called (inaudible) where we completed an acquisition which does server design, and brings in a lot more capability for us. But in general, we haven't found that market to be real vibrant at the moment, and so we're expecting it through this quarter -- December quarter we expect a sequential growth of about 8%. So, we'll start to see a little bit of a pick up. But it's been a little bit slower for us, I think. Louis Miscioscia - Cowen and Company: Okay, can you also give us a comment, I guess when we started this quarter and you raised guidance to 47 to 49, you guys came in at 47 and we're actually, lets say, $2 million or $3 million away from missing the low end of the range. What were the factors I guess that you were thinking three months ago that would have put you at the higher end or the lower end I guess, and then comparatively how did things slow out?

Yes, this quarter -- my view of this quarter is it tends to be the most difficult to forecast, and the reason for that is, you have to put out the guidance at the beginning of the quarter, you are still right in the middle of vacation and you don't quite know how the season is going to come on. In particularly the mobile sell-through, we have real struggle understanding how much of it's really going to go, there's a lot of new products that go out during these time frames. And a lot of times mobile components were chasing parts. So there's a lot of competition as these mobile phones ramp up to go with those parts and sometimes that's a real struggle for us. But in any case, I think it just happens to have the least reliable quarter in my view, the September quarter because we have to forecast it in July. And the other thing is, just remember, at -- if we were targeting 47 to 49 or call it 48 in the midpoint, to come in at 47 is not a real big variation off of, it's just such a large revenue base that $100 million of revenue isn't really much of a statistical swing.

I actually want to emphasize that point, Mike, is; you guys have to keep in mind, keep some perspective around the size of our company now. And when you're talking about $100 million fluctuation in revenue estimates, that very much is in the normal day-to-day changes and demand, nothing unusual there whatsoever. I also want to emphasize that we also reconfirmed our fiscal year estimates of approximately 25% fiscal annual revenue growth to about $19 billion for the year. So, whether we did 47, 48 or 49, I really want to emphasize to everybody on this call; that is absolutely in the day-to-day normal course of what we see in revenue fluctuations. There's pushes and pulls occurring every day. And the difference between 47 and 48 in revenues is only 2%. And we just cannot be more precise than that. So, I think you just need to give us a little bit of cushion when we give a range out there. We really do mean it's a range and we're not implying that it's the midpoint of the range. So, we're very happy with our revenue growth. It grew 23% year-over-year, 16% sequentially. So, I don't want to be defensive, I'm just trying to keep some perspective around the numbers. Louis Miscioscia - Cowen and Company: Okay, great. When we look to December, is it mostly seasonality that would swing you between the high and the low end or is it ramping programs, too? Thank you.

No. We'll pick up some seasonality, of course. But we're still seeing the programs ramping without question. It's one of the reasons our inventory turns are suffering a little bit. And also if you do the math, as Tom mentioned on the $19 billion, it also says we're going to come through March pretty strong. We expect that to be a pretty good revenue quarter and, while there is normally, a typically a 15% decrease in revenues as a result of the seasonality, we're going to see that substantially reduced this year because we'll be continuing to ramp those programs on in through March. So, maybe half and half. Louis Miscioscia - Cowen and Company: Okay. Thank you.

Jim Suva of Citigroup; you may ask your question. Jim Suva - Citigroup: Great, thank you. So, when we look about your cash balance, which of course was helped due to the sale, can you give us a little bit of update on your use of cash going forward? I know you have a stock buyback that's authorized, but I don’t believe you have done any stock back. Are there any plans to use that or is that just something that was an announcement with no real weight behind to use it or do you intend to use cash to grow the business and what are your plans there?

Yes, Jim, thanks for asking that question, it's a good one. When we announced the authorization of stock buyback, that certainly was a possibility at the time. Since that time, we've announced significantly higher revenue growth. We have seen as you know, a significant reacceleration of revenue growth. I just don't know a lot of $15 billion technology companies that are going to grow their revenues by 25% this year. So, I think you should realistically think that a stock buyback is off the table when we're growing revenues 25% a year, and as Mike said in the script, in his prepared comments, we very much intend to deploy the proceeds from the divestiture into continuing to grow our business. So, when we're growing 20%, 25%, 30% a year, I think we will conserve our liquidity to reinvest in the growth. Jim Suva - Citigroup: Okay, then as a follow-on, earlier, Mike mentioned that September quarter tends to be the most problematic with vacations for forecasting and holidays and things like that. Does that mean that the December quarter that you indeed have meaningful more visibility into this revenue outlook than, say, September?

Yeah, I actually think by October we have a pretty good look at what that looks like. The one thing that always ends up being a little bit of an unknown to us is the mobile phone demand which is a big part of our numbers. But outside of that, I think by the time October comes, I think people pretty much have a little better of understanding of what the season is going to look like. And again it's not really vacations and that in July that are better the problem, it's just that people don't know how the Christmas seasons come in and what the season is going to look like in July, I mean, independent of vacations and things like that. So, I think December is a little bit more reliable in terms of, a little bit more predictable, I would agree with that, yes. Jim Suva - Citigroup: With that predictability, you have a give and take, September came in at the low guidance but you're maintaining your full-year outlook. So, which quarter then picks up that excess that we didn’t see the September quarter, the December or March or kind of spread between the two?

Well, I think you will have to kind of back into it, Jim, and the answer would be March. We're pretty comfortable with our revenue range for December quarter, as Mike said, we have pretty good visibility around that. It is a range so it could be a little bit better, of course, or it could be on the low end again. But what that definitely implies is March would be better than normal seasonality and that's primarily because of the new programs that we're ramping up in the March quarter, Jim. Jim Suva - Citigroup: Okay, and last question, on operating margins, do you think you can maintain around 3, 31 here or does the revenue ramps make it so we have to stake a step back into the 29 range?

So, what I said last quarter and I'll say the same thing this quarter. I think for the December and March quarters, you could expect operating margins to be around 3% plus or minus 10 to 20 basis points. I think for the year, we'll be able to hold operating margins at 3% for the fiscal year. But for the last two quarters of the year, plus or minus 10 to 20 basis points around the 3% range. Jim Suva - Citigroup: Thank and you good job on the operating margins.

Thanks, Jim.

Kevin Kessel of Bear Stearns; you may ask your question. Kevin Kessel - Bear Stearns: Hi there guys. Mike earlier you mentioned that ODM phones for this year you were expecting I think you said 15 to 17, and if I recall, I believe the last quarter you guys were looking for 17. So, has there been any change in terms of the overall outlook?

Yeah, again, not really. I mean, we really don't know what they will sell or what they won't sell. I said 15 to 17, I probably should have put a range, I don't have a range on it next year, either. I just said 30. 17 is our best guess and what it looked like two quarters ago, it's actually still our best guess. It could easily trend down to 15, I think the range around probably keeps getting tighter because we get farther and farther into the year. But we do expect it to hold pretty nicely and like I said, better yet, we just, our next year is just looking very, very strong in terms of the ODM business coming up here. So, we're continuing to be very positive about how that year is going to develop as well. So, I think we're pretty much on track. Kevin Kessel - Bear Stearns: When does that business hit break-even or has it already reached break-even?

Yes, probably sometime around 13, 14 million phones is what we consider break-even. We're heavily invested in three pretty broad platforms, and so, we have a very, very substantial presence the overall business. That overall ODM business is probably about 1,000 people; we think it's probably the best in the world today, and it's heavily invested. So, I think the break-even is about 13, 14 million. So, the question is when does that hit? It's coming sometime around now. We'll be a lot back-end loaded on these 15 to 17 million phones, but I think we are predominantly hitting pretty close to now. Kevin Kessel - Bear Stearns: Okay. So, through September, do you have a number, a rough number of where you were for the end of September?

I do not, but I wouldn't be surprised if it's more than 5 or so, 6 maybe. That's just a guess; I actually don't know that number, I'm sorry. Kevin Kessel - Bear Stearns: Okay, and then lastly, in terms of, you guys have I think in the past spoken about what you expect the margin profile to be for these ODM phones; can you just update us on that?

Yes, it really depends on the phone and it depends on how many of our verticals we get in there. So, we can actually get, on a real low end phone, where we're not required to use the, our, we don't use our verticals, it might be down around 2% or 3% range and then if we get all of our verticals loaded in a little bit higher-end it could probably run 5%. Kevin Kessel - Bear Stearns: Okay. Thank you very much.

Tom Dinges, of J.P. Morgan; you may ask your question. Tom Dinges - J.P. Morgan: Hi, good evening, guys. Tom, any change to your expectation for the full year on operating cash flow, last quarter you had said probably about break-even for the full year and then obviously with the CapEx you'll consume a little bit, but you did generate a little bit of cash this quarter and then I had a quick follow-up for Mike.

Yes, I would say if anything on the margin, it's probably a little bit better than what I said last quarter, as you pointed out it was maybe slightly better than expected this quarter. So, what I said last quarter was cash flow from operations of around break-even. I'm comfortable taking that break-even estimate up to about $100 million for the year. So, let's say I expect it to improve by about $100 million over my last quarter estimate. So, that would be cash flow from operations of positive of $100 million, and then CapEx of around 450. So, free cash flow of negative 350. Tom Dinges - J.P. Morgan: Okay. And then, Mike, you talked earlier a lot about the capacity additions that you guys are making in a lot of various regions and there's obviously been some newspaper articles that have been out there about the significant hiring that you're doing in places like China and so forth. Maybe you'll do a little bit more of this on Thursday, but I will just throw it out there, just sort of, where are you in that process, when does the full impact of a lot of that cost hit? Have you passed the halfway point there and now you expect over the next couple of quarters and obviously into next year to get some leverage off those costs and also the learning curve, especially off the employees?

Yes. That's a tough question to answer. We probably have 3 million or 4 million square feet going up and we have capacity going up in the plastic enclosures, PCBs, the whole bit. So, it is hard to say exactly when you cross the threshold. What Tom kind of mentioned is that, in terms of margins, we do anticipate the next two quarters to be a little bit tougher. We still expect to come out the whole year at about three points. I would expect in June of next year that we would be substantially through most of our ramps, and hopefully we'll find more and more business to go ramp more, of course. But I think June of next year, we kind of keep up. We've probably hired in the last 12 months, we have probably hired 20,000 people and we've probably brought online maybe half the 3 million to 4 million square feet. But we still have to keep, put it in, that we're going to experience an accelerating March, and so I'm kind of hoping that we catch up with the learning curve and the inventory turns and all that. Really, I'm hoping that we can get through that by June of next year. In terms of CapEx that we've spent, we've probably spent about $275 million out of the $450 million. So, call it a little bit better than the half-point. But I'd like to think that things normalize by June quarter. Tom Dinges - J.P. Morgan: Okay. Thank you.

So operator, why don't we take one more question and then we wrap it up?

Thank you, Brian White of Jefferies & Company; you may ask your question. Brian White - Jefferies & Company: Okay. Good afternoon. When we look at the mobile phone market typically, growth rate, the sequential basis accelerate, are we going to see that in the December quarter or did we grow so quickly in the September quarter that the growth will not accelerate?

No, we actually, September to December quarter we should see some pretty substantial mobile phone growth. Brian White - Jefferies & Company: Okay. So, above the 33% you just did --

It won't be 33%. But it will be like 20%. Brian White - Jefferies & Company: Okay. And if we look at the computing market, is that something that's going to bounce back in the December quarter?

Yes, we think computing is going to be up around 8% or 10%. And then I think on an overall year basis, we'll probably be up about 15%, last year to this year. And then I think our next year, our FY'08 will probably be, we should have pretty substantial growth rates. We'd be pretty disappointed if it wasn't in the 20s. Brian White - Jefferies & Company: Okay, Eastman Kodak deal, what was the revenue contribution in the September quarter, if any? And then what is the contribution in the December quarter?

Yeah, September was very, very small.

Very little; we closed that rate at the end of September, Brian. So it's, I think we had 11 days of revenue or something like that. So, call it nothing.

We actually thought we'd close it earlier, by the way. That was one of the things we thought we'd be able to bring into the September quarter. We only had about 11 days and then, so, we'll start seeing that in the December quarter, really. Brian White - Jefferies & Company: What type of revenue, a couple hundred million in the December quarter?

Maybe about a 150 or so; I don't know the number off the top of our head here. Brian White - Jefferies & Company: Okay, great. Thank you.

Okay. Thank you very much. I appreciate everyone's attention.