Mike McNamara - CEO Tom Smach - CFO

Alex Blanton - Ingalls & Snyder Steven Fox - Merrill Lynch Brian White - Jefferies Carter Shoop - Deutsche Bank Tom Dinges - J.P. Morgan Bernie Mahon - Morgan Stanley Lou Miscioscia - Cowen and Company Kevin Kessel - Bear Stearns Jim Suva - Citigroup

Good afternoon and thank you for standing by. Welcome to Flextronics Third Quarter Earnings Call. All lines will be on listen-only until the question-and-answer session of today's conference. (Operator Instructions). Today's call is been recorded. If you have any objections please disconnect at this time. I would now like to turn the call over to Mr. Mike McNamara, Chief Executive Officer. Thank you sir, you may begin.

Yeah, good afternoon ladies and gentlemen and thank you for joining the conference call to discuss the results of Flextronics' third quarter ended December 31, 2006. To help communicate the data in this call, you will 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, Tom Smach. I will turn the first part of the call over to Tom to go through the financial portion of our prepared remarks. I will then provide commentary along with guidance, and then open it up to some questions. So, go ahead, Tom.

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Thanks, Mike and good afternoon ladies and gentlemen. Slide 2, please note that this conference call contains forward-looking statements within the meaning of the US securities laws, including statements related to revenue and earnings growth, the success of our vertical-integration strategy, our ability to add necessary capacity, expected improvements in our SG&A expense levels, inventory management, operating margin, cash flows, and return on invested capital, as well as 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 15 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 this earnings press release, slide 7 of the slide presentation, and the GAAP versus non-GAAP Reconciliation in the Investor section of our website, which contains the reconciliation to the most directly comparable GAAP measures. Slide 3. Revenue increased to $1.3 billion or 31% from the year ago quarter to a record high, $5.4 billion, in the December 2006 quarter. On a sequential basis, revenue increased $713 million or 15%. Slide 4. Revenue from the Computing segment comprised 11% of total December quarter revenue, which represents an increase of $21 million or 4% over the year-ago quarter and a sequential increase of $36 million or 7%. Revenue from the Consumer Digital segment comprised 23% of revenue, which represents an increase of a $191 million or 18% over the year ago quarter, and a sequential increase of $160 million or 15%. Revenue from the Infrastructure segment comprised 21% of revenue, which represents an increase of $236 million or 26% over the year-ago quarter, and a sequential increase of $66 million or 6%. Revenue from the Mobile segment comprised 36% of revenue, which represents an increase of $679 million or 53% over the year-ago quarter, and a sequential increase of $426 million or 28%. And finally, revenue from Industrial, Automotive, Medical and Other segment comprised 9% of revenue, which represents an increase of a $163 million or 48% over the year-ago quarter, and a sequential increase of $25 million or 5%. Our top 10 customers accounted for approximately 65% of revenue in the December quarter, with only Sony Ericsson exceeding 10% of the total. On a geographical basis, Asia increased sequentially to 64% of December quarter revenue, while the Americas decreased to 20% and Europe remained constant at 16%. Slide 5. Non-GAAP operating profit increased to 29% from the year-ago quarter to $161 million. As expected, gross margin declined 30 basis points on a year-over-year basis to 5.4%. Offset by a 30-basis point improvement in SG&A, as a percentage of sales was at a record low of 2.4%. As a result, operating margin remained at 3% in both the December 2006 and 2005 quarters, which was inline with our previously stated margin expectations. Although we continue to invest heavily in resources necessary to support our revenue growth, we believe that we have significant cost percentage by leveraging SG&A more efficiently than our competitors as evidenced by what we believe is an industry leading SG&A rate of 2.4% of sales. Slide 6. Excluding losses on divestures, amortization, stock-based compensation expense and restructuring and other charges, quarterly net income amounted to a rerecord high, $136 million, which is a 15% increase over the year-ago quarter. This resulted in earnings per diluted share of $0.23 in the current quarter compared to $0.20 in the year-ago quarter. Slide 7. After-tax amortization and stock-based compensation amounted to $17 million compared to $14 million in the year ago quarter. There were no restructuring charges or other net charges this quarter compared to $62 million in the year-ago quarter. After reflecting these items, GAAP net income amounted to $119 million compared to $42 million in the year-ago quarter. This resulted in GAAP earnings per diluted share of $0.20 compared to $0.07 in the year-ago quarter. Slide 8. Return on invested capital improved 120 basis points to 11.5% from 10.3% in the year-ago quarter. We run our business internally based on ROIC and we are very pleased with its continued improvement as ROIC now approximate our cost of capital. While we continue to run our business based on the return on invested capital model, we have also presented an industry comparison of return on invested tangible capital or ROITC, which excludes intangible assets from the invested capital base. We present this comparison only for benchmarking purposes as many competitors have written-off their goodwill and other intangible assets. ROITC is therefore the only relevant return metric for benchmarking purposes. Our ROITC was 28% in the most recent quarter, which continues to be industry leading. Slide 9. We ended the quarter with $909 million in cash. During the quarter, debt was reduced by $240 million to $1.5 billion, which is the lowest level in three years. Net debt, which is total debt less total cash, was only $592 million at quarter end. Including the revolver availability, total liquidity was approximately $2.3 billion and the debt-to-capital ratio was 20%, which is near a record low. Slide 10. Cash conversion cycle came in at 12 days, which is an improvement of 2 days sequentially and continues to be industry leading. Inventory improved four days sequentially to 8.0 turns, up sequentially from 7.3 turns. Receivable days improved 3 days sequentially to 32 days, while accounts payable days were reduced to 5 days sequentially to 66 days. Slide 11. During the December quarter, we generated $350 million in cash flow from operations. Depreciation and amortization amounted to $78 million in the quarter. We are extremely pleased with our working capital management as we continue to drive exceptional cash conversion cycle performance. While sales increased to $713 million sequentially, we were able to reduce inventory by $79 million during the same period. CapEx amounted to $159 million and acquisition payments amounted to $106 million. Free cash flow, which is cash flow from operations less CapEx amounted to $191 million in the quarter. Thank you ladies and gentlemen. As you turn to slide 12, I will now turn the call over to Mike McNamara.

Thank you, Tom. Before discussing guidance, I would like to provide insight on some of the highlights of our operational performance this quarter and the current state of the business. Last year we initiated our strategy to accelerate revenue and profit growth in our core EMS business, which is realizing success for our company and for our customers. A central part of the strategy at the organization of our resources is around market -- is market-focused approach, which allows us to better serve our customers. We are pleased with the results to-date. For example, in the December quarter revenue reached a record high, $5.4 billion, which exceeded our guidance of $5.1 billion to $5.3 billion. Non-GAAP net income reached a record high $136 million. Year-over-year revenue increased 31%, while non-GAAP operating profit increased 29%. ROIC improved 120 basis points from the year-ago quarter, ended up at the highest level in almost six years at 11.5%, which approximate our cost of capital. Cash conversion cycle improved 2 days on a sequential basis to an industry-leading 12 days. Debt was paid down by $240 million, resulting in a near record low leverage ratio of 20%. Inventories were reduced by $79 million sequentially, despite a sales increase of $713 million during the same period. Free cash flow amounted to $191 million in the quarter. Operating expenses reduced to a record low 2.4% of sales, which we view as an extremely important cost competitive weapon. And lastly, and perhaps most importantly, our customer service ratings are an all-time high. In light of the significant learning curve costs and investments in new capabilities we have undertaken this year, we believe achieving operating profit growth of 29% during the quarter, which is roughly inline with revenue growth of 31%, is exceptional. This is a testament to strong operational execution and our all-time high customer ratings. Fiscal 2007 is the heavy investment period to support our broad-based growth. The capacity expansions in China, India, Malaysia, Ukraine, Brazil and Mexico are progressing as expected. Our geographic expansion is required to enhance our position and competitiveness for each of the growing regions. Additionally, we continue to expand our vertically-integrated service offering where we've been adding capacity in plastics, metals, PCBs as well as introducing new capabilities in machining and LCD displays. CapEx in December quarter amounted to $159 million, and we are now increasing our forecasted CapEx by $100 million to approximately $500 million in fiscal 2007. Obviously, making significant investments for the future, and we will continue to wisely invest as required to build an increasingly stronger competitive position. We continue to improve our fixed assets throughput and estimate the net fixed assets to sales ratio in fiscal 2007 will be approximately 10%, which continue to improve from high of 16% in fiscal 2002. We continue to make these investments, to not only help us meet our revenue growth expectations or yielding better profits and return for shareholders, but to also improve our competitiveness, enhance our capabilities, and provide value to our customers and increase their competitiveness. During the high growth period, we think we are executing very well in the controllable aspects of our business, and are extremely pleased with our continued excellence with our working capital management, as evidenced by our return on invested capital, strength of our balance sheet and cash flow generation. Although, there is still work to be done, we are quite pleased with our results and are very enthusiastic about the direction of the company. We are currently ramping multiple large scale customer programs with the focus on execution and superior customer service. In addition, we are working on continuous improvement in several areas of our business, such as operating margins, inventory management and ROIC during this time of accelerated growth. Slide 13 and fiscal 2007 guidance. While the December quarter was better than expected in many respects, we think it is prudent to maintain and not to raise expectations for the fiscal year ended March 31, 2007. We are therefore not changing our long-standing expectation and continue to expect revenue to increase by approximately 24% to approximately $19 billion, operating profit to increase approximately 23% and diluted EPS to increase approximately 15% to approximately $0.80 per share, which equates to our 3% operating margin target for the year. Obviously, there is a range around these estimates and we urge you to be conservative as the economy and demand trends are dynamic. Slide 14. March 2007 quarter guidance. As a result, March quarter revenue should be approximately $4.8 billion and diluted EPS should be approximately $0.20. This represents year-over-year revenue growth of approximately $1.3 billion, which is a growth rate of approximately 30% and an operating profit growth rate of approximately 40%. I want to once again emphasize that there is a range around these estimates, and we urge you to be conservative, as the economy and demand trends are dynamic, especially in the March quarter each year. GAAP earnings per diluted share are expected to be lower than the March quarter guidance provided herein by approximately $0.03 for quarterly tangible amortization expense and stock-based compensation expense. Part of our stock-based compensation expense includes restricted stock grants to executive officers that will begin to vest in April 2007. As a result, we would like to forewarn you that this will result in some income tax driven insider selling, and you should not interpret this as any indication of insider views on the valuation or outlook. It is nothing more than insiders' monetizing the shares to pay for the related income tax resulting from the vesting of restricted shares. Although, we are not providing guidance for fiscal '08 until next quarter, we would like to once again highlight that our long-term annual growth targets for revenues to grow 10% to 15% and earnings to grow 15% to 20%. Slide 15. Risk Factors. There are real risks of operating this business, which includes a macroeconomic or technology slowdown among other things. Please pay particular attention to this slide in light of the current market conditions. And I will now turn the conference call over to the operator for questions. Please limit yourself to one question and one follow-up. Let's go ahead, Andie.

(Operator Instructions). Our first question comes from Alex Blanton with Ingalls & Snyder. Your line is open. Alex Blanton - Ingalls & Snyder: Hi, good afternoon.

Hi. Alex Blanton - Ingalls & Snyder: A quarter ago when you reported and I think the quarter before that you talked about the margins in '08, not specifically, but you said that this year is burdened by the startup costs of this huge increase in volume and that those startup costs would stay basically the same in fiscal '08. When you expect to ramp about the same amount of new business as you are ramping this year, so the startup cost would stay the same, But you would get higher margins on the business that you are ramping this year, so that you would have an increase in margins in fiscal '08 whereas in fiscal '07 the first year the ramp, you are not getting it. Could you update us on that situation? Is it still that that's going to happen?

Yeah. If you look at FY'07 versus FY'06, the actual -- the margin deterioration was actually little less than I anticipated, to be honest with you. I expected, I mean it's basically the operating profit year-on-year is just about flat. And I expected the -- there to be a little bit more pressure on the margins based on the startup cost. The reason for that is we were coming of off three years of very, very moderate growth, and we weren't positioned for such a strong growth. So, we added $4 billion of businesses this year from a cold start. And I think -- I thought that will put some additional pressure on the margins. In fact this year, we fared a little bit better than anticipated, I think holding margins roughly flat from last year is actually a notable accomplishment. I do expect FY'08 to have less margin pressure because we are not coming off of a colder start. And we worked very hard in FY'07 to put in the processes that are necessary to maintain and grow at a nice -- we kind of always referred to our -- or we set expectations that we think we can achieve long-term growth, 10% to 15% every year. So I think we put in more processes this year. Well I know we did, that's going to allow us a little bit more sustainable growth and a little bit more repeatable execution. So I think the margin pressure going forward is going to be a [lead] a little bit from a startup cost standpoint. And that’s why we thought FY'08 we would have some margin expansion. Alex Blanton - Ingalls & Snyder: But you are not quantifying that.

Well, we put out a target that we'd like to see the operating profit improve 10% this year, in terms of a percentage basis -- but again I mean one thing we are going to stay very, very focused on, is creating sustainable growth over time and we feel pretty comfortable that we are going to be able to grow the revenue 10% to 15% and operating profit 15% to 20%. With that being said we are not even in FY'08 yet, so I think we'll get some more looks at it. There is a lot going on with the economy right now. It seems like this March quarter is the most uncertain for us, so I think we'll get a better look at it over the next couple of months and then when we come back in April we will be able to give you a better idea what it looks like. Alex Blanton - Ingalls & Snyder: Okay. Second question is, could you give us just some color on what were the biggest pluses for you on the revenue side in the December quarter? Sony for example, Sony Ericsson had a huge increase in sales, Xbox was up, were those factors and what else?

Yeah, I mean mobile without doubt, Sony-Ericsson would be the biggest single contributor if we can pull something out, but the overall mobile business itself went up quite a bit this year. It went up -- year-on-year it went up 52% and even sequentially went up like 28%. So, it's pretty strong growth. And just kind of across the board, we had good growth. Sequentially whether it's our computing business or our mobile business or consumer or the industrial, medical, automotive or infrastructure, all of them went up sequentially and of course, all of them are going to be up year-on-year pretty substantially. So, I think I'll like to see it very, very broad based and even if you look at our geographic expansion where we are adding capacity, it's Brazil, Mexico, Hungary, Ukraine -- not Hungary, Ukraine I am sorry -- China, Malaysia, India. I mean all these places are generating pretty nice growth for us. So, I think, it's kind of multi-geography. It’s a little bit multiple segment, and one of the other things is we did add capacity in plastics, metals, printed circuit boards all this year, as well. So, our largest vertical segments as well have all grown nicely this year. So, it's pretty broad-based. Alex Blanton - Ingalls & Snyder: Thanks Mike.

Our next question comes from Steven Fox with Merrill Lynch. Your line is open. Steven Fox - Merrill Lynch: Hi good afternoon. A couple of questions. Was there any pull-in of business from that you expected to ramp or production schedules that changed with the March quarter versus December quarter? And secondly, can you just describe the $100 million increase in CapEx, what's that related to?

Yeah, I don't know if there was any pull-in, it was little bit better than we anticipated and to tell you the truth, we have such a broad customer portfolio that people are always trying to hustle to make their December quarter and do the pull-in if necessary. And so I think, December quarter more than anything else, is just, we have to execute a lot of pull-in through our customers. Now, whether it's any more or less than anticipated or always typical or seasonal, I am not sure, but we did have the typical theory of trying to meet customers' expectations around the December quarter. So, we are kind of [pouch] to them. We have to build what they are looking for. So, I don't know if there is anymore or less or different than before but it's -- I think I'll call it a typical December quarter. And the $100 million is really across the board. We probably invested $100 million in this year in our multi-printed circuit board operation. I mentioned we are adding plastics, we are adding metals capacity all around the world. We're adding in surface-mount machines, I don't know how many lines. We've added but a very substantial amount, couple of $100 million worth of investment there. And we did bring out about 4 million square feet of capacity in terms of capital. So, really across the board, it's just planned equipment. And I don’t think there is much else. Steven Fox - Merrill Lynch: Okay. Thank you very much.

Our next question comes from Brian White with Jefferies. Your line is open. Brian White - Jefferies: Yes, good afternoon.

Hi. Brian White - Jefferies: Mike, you talked little bit about the environment being dynamic, you had a great quarter you ramped a lot of programs. What markets if you had to dig down deep or types of businesses were a little slower than you thought in the December quarter? And are there any concerns on certain markets moving forward?

Probably, the lowest was -- if I can think about two things that I think are, would have liked to see more growth. It's hard to be nit-picky about the growth when you have grow on this much, but we would have liked to seeing computing be a little bit stronger for us. So, I think that was a little bit below expectations. We anticipate being on single digit growth rates for the year, and we grew at about 7% sequentially. So, we would have liked to seeing a stronger finish on that. I think infrastructure really showed a little bit of softening. I actually thought we had a little more cushion and little more upside on the infrastructure pieces. So it seems to us that a little bit of that is slowing a bit, and I don’t know if its because all the merger is going on the industry of -- industry itself is a little bit slower. I think there is a lot of information out in the marketplace that maybe that’s a little bit softer. So, that one -- if I think about two segments, those would probably worry me the most. And then for this quarter, mobile and consumer we just need to be worried about because mobile is always unpredictable in this first quarter, and the consumer business is also very seasonal. So, anyways despite of most under-predictability going into the March quarter so, but you know we have to be pretty happy with the broad-based process that we did have and we did over-achieve expectations at $5.4 billion. So, we are not really unhappy with any segment. I mean they all had growth rates year-on-year and sequentially. Brian White - Jefferies: Okay. And just Mike, when you say infrastructure you mean telecom that's what you are talking about?

Yeah. Its mostly telecom, yeah. Brian White - Jefferies: I am just curious Jabil's acquiring Taiwan Green Point to getting more involved in casings, kind of what are your thoughts in that area? Are there any capabilities you still need in the casing area?

Yeah, we are always looking for more compatibility. The biggest -- we have quite a bit of plastics, and specifically we have an entire division that does nothing but mobile phone, plastics and some of the related parts. We don’t have much in the way of metal. We have really metal technology that's relate to the casings, metal casings, and that’s an area that’s obviously grown very, very rapidly over the years, and its something that we are not participating in so. That’s a place that we should look to broaden our portfolio, and we are always looking for ways that might be the best way to go about that. We have a lot of plastic capability, already. We are adding quite a bit of capacity. We are -- just in the mobile division, we are adding multiple pan lines and another 50 to 100 machines over the next six months. So, there is still quite a bit of growth in the existing business. But once you get out into the more specialty finishes like metal and such, we are always looking to increase our confidence here. So, that’s an area that we would like to strengthen up. Brian White - Jefferies: Okay. Thank you.

Our next question comes from Carter Shoop with Deutsche Bank. Your line is open. Carter Shoop - Deutsche Bank: Hi, first question on the high-profile, new program ramps. There is obviously a large communications customer, Motorola and also on the networking side, Cisco, can you talk about those ramps in regards to -- are they fully ramped by the end of the December quarter or is that going to be something that goes into the March quarter for you?

Yes, I think. There is probably 6 or 8 reasonably-sized programs that will keep ramping through the March quarter. I think it's what's going to help a little bit of softness in the normal seasonality that occurs in March for us. But I don't think those programs are just like ramping and then they are done. I mean hopefully there is some sustainability into them and hopefully there is some continued penetration into the customer base with a lot of these programs. So I actually feel a little bit more positively that some of these are almost customer acquisitions as opposed to program acquisitions and I think it put us into a position to be more successful to continue to penetrate additional programs with those customers. So, I don't feel as much as a one-off kind of ramp. Some like a Kodak we did that last year, was actually to acquire all the camera, all the digital cell camera business and so it was kind of more of a one-off event, but I think a lot of these are the customers like you mentioned Motorola and Cisco are customers that I hope that we can continue to penetrate over the years. Carter Shoop - Deutsche Bank: Okay. Great. And as a follow-up question, sales are up about 15% sequentially and SG&A on an absolute basis is actually down a little bit, can you talk about some of the drivers there in the quarter and how sustainable is it at the current level?

Yeah, SG&A and what was your first comment? Carter Shoop - Deutsche Bank: It's the sales are up so much sequentially, I think 15% sequentially. And then SG&A on an absolute basis was down, and…

Right down to 2.4% Carter Shoop - Deutsche Bank: Yeah, I'm curious with the leverage there are that helped you to keep it, SG&A so low and also is that sustainable?

Yeah, it was a big quarter, so coming off as a 5.4 rate and then going into a 4.8 rate, we are not going to switch in and turn all that SG&A off, so it will comeback a little bit. We are running our SG&A, so that we can create cost competitiveness. We think we can run our business with a very, very aggressive SG&A rate. We won very, very efficiently and lean as a company where we try to take out massive amount of bureaucracy and the levels of management we have I think are quite a bit lower than the normal company. So it allows us an opportunity to get the SG&A out. So we are going to drive to that, so the question is it sustainable? Not sure sustainable at 2.4%, but we for sure don't ever anticipate it going back into the 3s. And in fact, we can probably run all next year averaging, probably close to like 2.5%. I actually don't know the number yet, so don't poke me on that. But we are working very hard to make this a competitive advantage to us. So yes, I think it's sustainable, not necessarily at 2.4, but our long-term growth rate is to have the same approach too. Actually we are going to get there, but we have to try real hard to make that happen. And a lot of that's going to be driven by some of the volumes. So the other comment on sales, that's sustainable. We've had good sales quarter, we've had a good sales year. I like to think that the strategy that we've put in place, the operating system and some of the executions that we are seeing right now create a bit of sustainable advantage to go compete in the marketplace, and so I do think we have set up our system to be able to continue to grow the business, and so I definitely feel very, very comfortable that we will be able to continue to grow at 10% to 15% unless the economy falls apart.

Our next question comes from Tom Dinges with J.P. Morgan. Tom Dinges - J.P. Morgan: Hi good afternoon guys.

Hi. Tom Dinges - J.P. Morgan: Mike a quick one for you when you talked about, you are running it about 10% net fiscal assets to sales, is that kind of a level that you think you are going to able to sustain at that top-line growth there after the big heavy investment year that you have got here? Or do you anticipate may be a little bit of investment still sort of spilling out at least may be into the first couple of quarters or next year or so? And then I just have a quick follow-up for you.

Yeah, I think we had a little bit of step up this year in terms of investments. The best example I can give is Multek where we actually brought on a couple of -- brought in $100 million of business -- sorry, invested $100 million of capital into that business including two printed circuit board fabs and I think it kind of steps up -- it's kind of a step that we have to come across. I think some of the investment that we've put in place in Mexico and India, even some of it in China is a little bit of a step. But we are continuing to expand in some of those locations as well. We are actually still looking at CapEx that we are looking to invest for this year. I actually expect the CapEx to be a little bit higher in the first half of this year kind of the continued momentum that we've had and then I would kind of expect it to taper off at the back end. And the question is what does that do in terms of our revenue as a percent of sales. And I think, we actually will dip down into maybe into the nine range, but I think it ends up being pretty -- it really starts to flatten out at that point. For me, there is a little bit more improvement, but it's starting to deteriorate. Tom Dinges - J.P. Morgan: Okay. And then just a real quick one for Tom on the cash flow side, you guys did a lot better than you were expecting. Just real quickly one of leverage here looks like receivables relative to obviously the sales growth for the quarter was a lot better than expected, was there something perhaps on the linearity side or is this just some of the things that Mike had alluded to little more lean and mean on the procedural side and actually doing a better job on the collection?

Well, I think our past two receivables were at an all-time low during the quarter, and if not an all time low, certainly near it. But I would also point out that as I think everyone is aware, we have a receivable sale program and with the higher level of sales, we also sold a higher level of receivables. So, I think on an operating basis, we keep past two accounts very, very low -- world class in my view and with the higher revenues, we just sold a little bit more receivables as well. Tom Dinges - J.P. Morgan: Okay. That explains it. Thank you.

Yes.

Our next question comes from Bernie Mahon with Morgan Stanley. Your line is open. Bernie Mahon - Morgan Stanley: Hi, good evening.

Hi. Bernie Mahon - Morgan Stanley: Question for you on the inventory side. So, you worked it down about $70 million in absolute dollars in the December quarter, and Tom I think last call, you had said, you plan to work it down $300 million to $400 million through the June quarter, could you just kind of give us an update to where you stand there? Do you expect to work it down on an absolute basis in the March and the June quarter may be how much? And then what segments as well?

Yeah, I think we are looking to work it down. It's obviously going to depend a lot on the revenue level to be -- that actually drives it a little bit more. If we get any kind of stability or softness in the revenue growth, which we also kind of hope doesn't happen, but if we get any softness we for sure will drive more inventory out of the system, so given a kind of a flat scenario, we will for sure be able to take a couple hundred million out. We think there is a lot of opportunity in our infrastructure business to get some out, but we are going to work real hard. We did a lot of organizational changes and a lot of -- we actually had a lot of disruption to the standard operating system, if you will, and we are going to work to tighten down our system quite significantly this coming year. So, I think it's going to yield some nice improvements in terms of inventory turns. But it kind of depends on revenue more than anything else. If June looks like a good quarter for us, and we are going to go start to ramp again, we are going to have to go buy inventory to go fund that ramp. But all things being equal, I am pretty certain we can get that 300 -- I think we talked about getting 300 million up by June, and I think all things being equal in terms of -- are pretty, if it's just pretty modest revenue growth I think we will be able to get 300 out. Bernie Mahon - Morgan Stanley: Okay. And that's helpful.

Again, relative to inventory turns and that sort.

And Mike, I just think it's important to clarify that $300 million objective was based on a same levels of sales. Bernie Mahon - Morgan Stanley: Yeah, right.

It's kind of a same-store sale basis, if you will. Bernie Mahon - Morgan Stanley: Okay. And then just what parts of those that are in inventory, is that just kind of across the board in terms of semiconductors, passives, conductors, boards, is there anything that you probably have a little bit too much of it that you need to work down more than another part?

I would say not, I think it's more of -- no there is not any real one item that's driving it. I think if you look in the segment it's more infrastructure. The reason infrastructure has more opportunity but also has lower inventory turns, because it's just such a complex business, and there are so many different components that go into making infrastructure products. So, it's really not any one thing to go focus on. And we would not attack it by going after certain commodities. We would attack it by going after programs and efficiencies and overall components can set into hubs and just a more efficient supply chain getting there our integrated supply chain solution a little bit tighter. So, we're kind of approaching on a generic basis as opposed to a commodity specific basis. So, I won't think you can target it to any particular component. Bernie Mahon - Morgan Stanley: Right. That's really helpful. Thanks a lot.

Our next question comes from Lou Miscioscia with Cowen and Company. Your line is open sir. Lou Miscioscia - Cowen and Company: Okay. Thanks. Mike, I wondered if you could go on to little more detail and just a reevaluating I guess -- resetting from a competitive standpoint, especially obviously with everything you guys have done and continue to do with your vertical situation standpoint, obviously the ongoing acquisitions to that area maybe start with high-and-high, but then obviously compared to the other three that aren't doing as well? And then maybe even Jabil, I guess, it's just [telling] there, maybe some thoughts there?

Yeah, we are -- I guess, we think about the competitors a lot but most of what we are trying to focus on is to build a competitive offering that allows us to be in the choice all the time when the customers are looking for a solution. So our thoughts competitively are to build the stronger portfolio of capabilities. It's one of the reasons that we added LCD displays and machining. We did an acquisition called [iWOW] which gets us into the -- gets us a little more know how into the computing space. And we have also done some other programs or other small kind of acquisitions to bring up capability and know how. So we are focused at bringing at broadening our tool box. At the same time we are trying to focus more on making our operations a little bit more product specific, if you will so that we can create real value within a particular product category whether it's a mobile phone or whether it's an infrastructure product. So, we are working on the systems and the processes in the operations associated with that. So, we think this is what gives us competitive advantage. So, we think about competing against the other guys. Obviously Hana is a real tough competitor. We are not going to take him on the PC space, that's a place they can continue to go on and dominate I think. But we are going to go start picking around in terms of the computing with some of the new capabilities we have brought on. So they are going to continue to be a tough competitor. We have a much broader infrastructure around the world, which gives us a little bit of advantage in terms of doing worldwide programs and taking things from all the way from a concept and design all the way into repair distribution on the back end on a worldwide basis. So we are going to continue to refine those capabilities. And as far as competing with some of the US CMS guys, one of the things that we have had a big transition in the last two years is that in fact we probably do more low volume high mix complex products than anybody in the world today. So we've -- with the Nortel acquisition, with some of the (inaudible) acquisition we did. We've now got Juniper and Cisco and such. And you put all those together in and it builds a product offering that's very, very strong. So the space is that it's been traditionally owned by the big US CMS guys like telecom and high-end computing places that we now feel that we have had a good a product offering maybe even better to go after those kind of spaces. So I think what we've done over the last year and a half is really transition ourselves into that high-end complex space. I think that's going to help us compete a lot against the big US CMS guys. So I think it's a -- hopefully, we are trying to change the game as much as we can, and I think its one of the reason we are having a little bit of success. Lou Miscioscia - Cowen and Company: Okay. Two quick follow-ups more of housekeeping I guess, you mentioned obviously that ROIC is going in the right direction. I was glad to see that. If you can just give us the whack there and any thoughts on CapEx in a way, maybe, not even if you can't give us a dollar math, just directionally compared to this year?

Can you comment on ROIC? I mean our objective on ROIC may be you can -- after this, Tom is -- we are just going to keep grinding a way at it. And we think there is an opportunity to do that. We think inventory turns is an opportunity for us. AR and APR are probably pretty stable. But we can for sure, grind a way at inventory turns a little bit and I think we can grind a little bit way at our success relative to sales. So I think our objective is just to keep internet up. And as far as CapEx I would guess we are going to end up doing -- it really depends on when we really get serious about setting our FY'08 outlook, but we do still anticipate 10% to 15% growth. On the base, we have it's still abut $2 billion or $3 billion maybe. They're still going to acquire some CapEx. So I would suspect it's going to be somewhere in the -- almost I think 450 to 500 range, if I was to guess at this point, but may be you have a comment. Tom?

I don't really have a comment on CapEx, but the answer, Lou, to this question on weighted average cost of capital, Lou, was 12% at the end of the quarter and our ROIC was 11.5%. So, I like Mike, don't want to really set an objective for next year other than to say if cash conversion cycle improves mainly through inventory turns and our throughput on the fixed asset base improves like Mike said which we expect that hopefully this fixed asset to sales ratio go down to around 9%. Our asset efficiency is improving on both the working capital and fixed asset side along with improving profits. As Mike said longer term, we expect to be able to grow profits 15% to 20%. So improving profits on the lower asset base will definitely yield the higher return on invested capital to improve for 6 years in a row now. And I don't think that we've really reached the potential. Our long term objective is in ROIC of 15%. Lou Miscioscia - Cowen and Company: Okay. Great. Good luck on the new calendar year.

Thanks Lou.

Thanks.

Our next question comes from Kevin Kessel with Bear Stearns. Your line is open sir. Kevin Kessel - Bear Stearns: Yes thank you. Mike and Tom, just looking back at the guidance of 4.8, I know you guys stayed, you are not changing anything you want to remain prudent. When I look at that sequentially, looks down like double-digit at this point and I think you guys have spoken in the past that you don't expect less seasonality as result of all these programs, Mike that you talked about the 6 to 8 that will ramp throughout March, was it in fact these things prudent here or are you actually thinking maybe it is a bit more seasonal, maybe things were -- [in fact look] forward a little bit?

Well, one thing as we -- we have a little bit of base. We had a little bit of base creep on the December quarter because we actually anticipate doing like 5.2 and we actually came out at 5.4. So, we were actually, maybe it's being prudent, maybe it's just looking at what we are seeing in terms of similar data we see in the economy and such, but we set this objective of trying to hit the 19. We are working hard to try to hit that. Sometimes a little bit of January revenue creeps into December, since some one is trying to -- we talked a little bit about that before, some of the OEMs are trying to goof up their revenue and have a good December quarter and do some pull-in. So, it's hard to get anymore precise than this. In fact, just being plus or minus a couple of hundred million on such a large base is really in the noise to be honest with you. And so you are kind of in the levels that -- I don't know, we are maybe the spread around this thing is -- we think there needs to be more of a spread as opposed to less of a spread, and we actually think that's normal behavior. Kevin Kessel - Bear Stearns: Okay. So, what you are saying is in terms of the range, you are referring to the range. It actually might be getting wider, you think as opposed to narrow or --?

Sorry. It's always a little bit wider in March, just because there is more uncertainty going into March than there is any other time of the year. So, but no this is just kind of what we see, we've held pretty stable at the 19. What we see right now is it rolls up about 4.8 and that's where we think we are going to be for this quarter. So, again at -- I don't know, but this is what it looks and it's pretty stable and it's pretty consistent. Kevin Kessel - Bear Stearns: Fair. And then, just turning to handsets quickly, when do you guys get -- I think, still you get a real good sense for what your customer saw in terms of sell-through. And then, do you still expect Motorola to be above 10% customer next quarter and then if you could just update us on the ODM business and whether or not that hit breakeven in the quarter?

Yeah, I think the upcoming goods above the ODM the -- I think we do so anticipate Motorola being a 10% customer. I haven't rolled up and tried to look at it that way in the latest numbers, but I think probably your 10% customer and are substantially close. If it's not 10%, it's probably going to be real close. As far as the ODM business, we've talked a lot about focusing on these ODM phones. As we've transitioned our business over the last year and a half into these market segment focus. One other things that we've done is we've completely lined all the design and operations and sales and everything into a bundled business unit. And the purpose of the design guys in the ODM business are becoming more and more -- they are just less and less focused on just producing a complete phone like we always talked about how many ODM phones you are going to do. And it's really an ODM phone, it’s a CDM, it's providing a customer with the flip as an example, may be the end objective is to create a flip, which is not a complete phone. But they are starting to be a real migration towards -- it's not really an ODM phone. It's like an ODM or it’s a customer designed phone or it's jointly customer design phone or it’s a sub-assembly of a phone. And we don’t care what those pieces are, as long as we can create some value and be able to drive pay for our people of course and be able to drive higher margins with it. So what I am trying to say is the ODM business is starting to migrate into -- it's just more of a customer co-designed kind of business, and when you draw the line between what's an ODM and CDM becomes more and more difficult and hazy going forward. So, we are going to spend probably less time talking about absolute numbers and more time talking about just how the mobile business is evolving. Because that in the end is the objective of the ODM guys as they help grow that business for us. And as you know that business grew like 48% for us last year, 53% for us, or it has grown about 50% this year. Kevin Kessel - Bear Stearns: Right, I understand it like but then there is 30 million units you've referred to in the past still apply or does that not apply?

Yeah. I was going to quit talking about but what I can tell you, just to try to get back to perspective in terms of what we said before is we thought we would be online to go to 30 million phones for this coming year. And we actually think we’ve got pretty solid orders for 20 million of those 30. So, we think we are like right on track. But what I am saying is going forward I want to kind of get-off the absolute number because it's starting to get hazy as to what’s an ODM phone, what’s a CDM and how do you account that have phones. Kevin Kessel - Bear Stearns: Right. And then just on the sell-through, what about that one, you think you guys typically know what your customer sell-through was?

Yeah. I guess we are getting more data as we speak. I think the -- we usually start getting, we don’t give really much of anything in the first couple of weeks and then we really start to see whether it does not change or whether it changes in the third week, or fourth week or after that. But then of course that gives you an indication of what inventory looks like maybe but there is also the competitive response to that inventory, which still plays out there in the quarter or so. In another words, if someone does have a lot of inventory that they go take down price and go compete in a different way. So, I think its still evolves through the quarter and but I think it's -- if I can look at what cell phones look like, I mean they are substantially not very much different than expectations. Kevin Kessel - Bear Stearns: Right. And this housekeeping Tom, the depreciation drop this quarter and I am looking at CapEx this year and next year’s CapEx if you guys end up at 4 to 4.50. You would spend more in this year and next year than you spent in the last four years total in CapEx. So, I'm just trying to understand where should we expect depreciation to go here and how did you actually take it down in the current quarter sequentially?

It's just a timing of one certain asset fall off Kevin. So, clearly with our investment levels during the current fiscal year and next you can expect depreciation to migrate up higher. Right now just in round numbers, depreciation is running around $70 million a quarter and I would expect it to be somewhere in the mid-to-high 70s per quarter next year. Kevin Kessel - Bear Stearns: Okay. Thank you.

Maybe we'll take one more question, Andie.

Okay. Our last question comes from Jim Suva with Citigroup. Your line is open, sir. Jim Suva - Citigroup: Great. Thank you and congratulations. Can you give us a little bit of color on -- a lot of the cell phone makers have been talking about a mix shift towards a lower end of cell phones as opposed to the higher end? How does this impact Flextronics in a profitability of such?

Well, we don’t see a substantially different profit percentage on high end phone versus low end phone which is typically what our customer sees. So, from that standpoint, from a profitability standpoint, it's substantially the same. I mean we drive according to our ROIC model, we price according to an ROIC model, and as a result, it kind of levels out. We don’t get any technology breakthrough because of our manufacturing. That is a higher cost item. We don’t necessarily get higher profits from that. So where really a success is just in terms of revenue more than anything else? So if we are shipping a $25 phone instead of a $75 phone, we are going to have lot less revenue. So, if there is a big shift, then we are going to have less -- we will have less revenue, but the same profit percentage associated with that. So, if there is a big switch and more and more phones go into lower end and we built more and more $25 phone instead of $75 phones, it's going to have a hit up. There will be an impact on the revenue. Jim Suva - Citigroup: Okay. And then I have a follow-up for your gross margins, which came down as soon as it has to do with seasonality in the mix of consumer. Should we expect as in past years, a nice bump in gross margins next quarter like 30, 40 basis points?

No, I don't think so. We are pretty focused on operating profit and the gross margin. We are actually thinking about operating profit is the metric we are driving too. So, if we can keep operating profit flat during these high growth periods and maybe even be able to take it up, as we catch up on our learning curve cost and improve our operations, then that's where we are going to focus on and not necessarily focus on the gross margins themselves. So, I am actually not even -- maybe you have to comment on what you see is gross margins doing, Tom?

Yeah, I don't really want to give specific guidance Jim, but that's only SG&A will lever up as a percentage of sales because of the sequential decline in sales and gross margins likewise will go up to offset it. So, Mike is actually you are right. Operating profit, we're still targeting 3% for the year and that will be in the March quarter. We're pretty confident with what it has been for the last couple of quarters, but gross margins will increase a little bit in March and offset by a higher SG&A as a percentage of total sales. Jim Suva - Citigroup: Great. Thank you, and congratulations.

Okay. Thanks everybody.

This will conclude today's conference call. You may now disconnect.

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