Kevin Kessel – VP, IR Paul Read – CFO Mike McNamara – CEO

Sherri Scribner - Deutsche Bank Shawn Harrison – Longbow Research Brian Alexander – Raymond James Amitabh Passi – UBS Sean Hannan – Needham & Company Louis Miscioscia – Collins Stewart Steve O'Brien – JP Morgan Jim Suva – Citi Amit Daryanani – RBC Capital Markets Brian White – Ticonderoga Craig Hettenbach – Goldman Sachs

Good afternoon, and welcome to the Flextronics International Third Quarter Fiscal Year 2012 Earnings Conference Call. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Kevin Kessel, Flextronics’ vice president of investor relations. Sir, you may begin.

Thank you, operator. We appreciate you joining the Flextronics’ conference call to discuss the results of our fiscal 2012 third quarter ended December 31, 2011. Joining me on the call today is our chief executive officer, Mike McNamara, and our chief financial officer, Paul Read. The presentation that corresponds to our comments today is posted on the Investors section of our website under the “Conference Calls and Presentations” link, and it can also be accessed from a link directly on our homepage. The agenda for today’s call begins with Paul Read reviewing the financial highlights from the third quarter of fiscal 2012, followed by Mike McNamara, who will discuss the current business environment and trends within our individual business groups. He will also conclude with our guidance for the fourth quarter of fiscal 2012 ending in March. Following that, we will take your questions. Please turn to slide two for a review of the risks and non-GAAP disclosures. Our call today and our slide presentation contain statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially from those set forth in this presentation. Such information is subject to change, and we undertake no duty or obligation to revise, update, or inform you of any changes through forward-looking statements. For a discussion of the risks and uncertainties, you should review our filings with the Securities and Exchange Commission, specifically our most recent annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and any amendments thereto. This call and presentation reference both GAAP and non-GAAP financial measures that exclude certain amounts that are included in the most directly comparable measures under GAAP, including stock based compensation, intangible amortization net of tax effects, and settlements of tax contingencies. Non-GAAP financial measures may also be a supplemental measure of financial performance. Please refer to the Investor section of our website, which contains the reconciliation to the most directly comparable GAAP measures. I will now turn the call over to our Chief Financial Officer, Paul Read. Paul?

Thank you Kevin. Please turn to slide three. We generated $7.5 billion in revenue for our fiscal 2012 third quarter ending December 31, 2011, which was at the midpoint of our guidance range of $7.3 billion to $7.7 billion. Revenue declined $551 million, off 7% sequentially, driven entirely by the exit of the ODM PC business in the quarter. Our third quarter adjusted operating income was $150 million, down 15% sequentially and our GAAP operating income was $138 million, down 14% sequentially. Our operating performance was significantly impacted by the cost of exiting our ODM PC business, which I will address shortly. Adjusted net income for the third quarter was $128 million, down 19% from last quarter and our GAAP net income for the third quarter was $102 million, down 22% sequentially. We reported adjusted earnings per diluted share of $0.18, which was at the low end of the adjusted EPS guidance of $0.18 to $0.22 and down 18% sequentially. Our GAAP EPS for the third quarter was $0.14. Our diluted weighted average shares outstanding, or WASO, for the quarter was 721 million. This was a reduction of 7%, or 56 million shares compared with the 777 million shares reported a year ago, which was driven by our share buybacks. During the quarter we repurchased approximately 19 million shares for $110 million at an average cost of $5.88. Due to the timing of the repurchases during the quarter, we only realized the reduction in our diluted WASO of approximately 3 million shares. We will see the remainder of the reduction in our upcoming March quarter. Please turn to slide four. During our third quarter, we completely exited the ODM PC business. This business generated $187 million in revenue and accounted for a $70 million adjusted operating loss, which was greater than we had projected for the quarter. This loss reflects some incremental costs related to the wind down, such as final severance costs, additional supply chain termination costs, excess lease costs, and other final asset impairments. While the ultimate costs were higher than the $50 million we originally anticipated, we were pleased with the speed and efficiency that we were able to disengage from this multi-billion dollar business. We expect no further impairment charges or exit costs associated with our disengagement, and we have successfully redeployed the associated machining equipment back into our operations, which is saving us an estimated $50 million in capital expenditures. As you can see from this slide, excluded in the negative impact of the ODM PC business, our adjusted operating margin would have been 3%, and our adjusted earnings per share for the quarter would have been $0.27. Please turn to slide five. December quarterly revenue declined sequentially by $551 million. This decline was entirely due to the exit of the ODM PC business. Our top ten customers accounted for 56% of our quarterly revenues, and RIM was our only customer greater than 10%. Adjusted operating income totaled $150 million, and adjusted operating margin was 2%. As discussed in the previous slide, our operating earnings performance was significantly burdened by the losses associated with our ODM PC exit. The components businesses, excluding some costs we incurred to adjust the footprint of the power business, incurred a small loss for the quarter. We expect to complete the restructuring activities in our power business over the next six months and we’re excited about the recent new business wins in all three of our component businesses. Our EBITDA was $264 million in the third quarter, declining $31 million from the prior quarter. This contributed to our EBITDA margin declining 20 basis points, 3.5%, due to the sharp decline in our earnings. Our LTM EBITDA declined approximately $50 million to $1.15 billion from $1.2 billion a year ago. Our adjusted EPS of $0.18 was down 18% from the $0.22 we reported last quarter. As previously discussed, the ODM PC business losses negatively impacted our adjusted EPS by $0.09. Please turn to slide six. Net interest and other expense was approximately $8 million, up from the $1.5 million last quarter due primarily to lower FX gains. Similar to our September quarter, we realized strong foreign currency gains due primarily to certain strategic RMB positions, which resulted in $11 million in gains. We do not anticipate continuing to achieve this level of earnings from favorable foreign currency and as such would model a range of $15-20 million for net interest and other expense next quarter and going forward. The adjusted tax expense for the third quarter was $14 million, reflecting an adjusted tax rate of 10.1%, which approximated our outlook for the quarter of 10%. For our upcoming quarter, we believe modeling a 10% tax rate is appropriate. Lastly, turning to the reconciling items between our GAAP and adjusted EPS, stock based compensation amounted to $12 million in the quarter, declining $2.2 million and represented a $0.02 EPS impact. Intangible amortization net of tax was $13.6 million in the quarter and represented a $0.02 EPS impact. Please turn to slide seven. Inventory declined by 7% sequentially, or $272 million, to $3.6 billion. This decline was in line with our quarter revenue decline. However, our inventory turns decreased to 7.6 turns from 8.1 turns, which equates to an increase in inventory days of three days. Our inventory turns metric was negatively impacted as a result of the elimination of the high-asset velocity ODM PC business, which had carried inventory turns in excess of 30 turns. Our cash cycle expanded 3 days to 22 days sequentially, driven entirely by the increase in inventory days. During the quarter, our accounts payable declined $872 million, off 15%, resulting in our DPO increasing one day to 69 days. Offsetting DPO was the one-day expansion of our DSO to 43 days. We expect to manage our cash conversion cycle in this range going forward. Turning to the networking capital chart on the top right of this slide, overall networking capital remained relatively flat, only increasing $26 million sequentially. Our networking capital as a percentage of sales, however, increased to 6.3% from 5.8%. This performance metric also experienced some pressure as a result of our disengagement from the ODM PC business, which had historically operated with neutral networking capital. The lower-volume, high-mix business in our integrated network solutions, high reliability, and industrial and emerging industries carry networking capital requirements that are greater than 6%. We believe our business is now structured to run networking capital at a level around 6% of sales going forward. Our ROIC for the quarter remained healthy at 22.4%, however, declining from the 25.8% last quarter, reflecting the reduced operating earnings impact of our exit of the ODM PC business this quarter. Please turn to slide eight. Cash from operations was a positive $229 million during the quarter. Our ability to reposition machinery and equipment from our exited ODM PC operations enabled us to begin to realize some capex savings this past quarter. This is reflected in our net capital expenditure amounting to only $93 million for the December quarter. As a result, we generated free cash flow of $136 million for the quarter and $336 million on a year to date basis. During the quarter, we also spent $90 million to purchase our stock, and have now spent $396 million year to date. The difference between the $110 million in stock we repurchased this quarter and the $90 million in cash spent was timing resulting from the standard three-day trade settlement process. The other net change in cash for the quarter related to $72 million associated with the purchase of working capital and other assets from a major integrated network solutions customer for a significant new program that we are ramping. Please turn to slide nine. We ended the quarter with $1.5 billion in cash, down $50 million versus the prior quarter. Total debt remained constant at $2.2 billion. Our net debt increased to $653 million while our debt to EBITDA level increased slightly but still ended the quarter at a very healthy 1.9x. The chart at the bottom of this slide shows our significant debt maturities by calendar compared to our current liquidity, reflecting the completion of our new credit facility we closed in October. With that, I will turn the call over to our CEO, Mike McNamara.

Thank you. Before I cover the specifics around the performance of our core business groups, I want to briefly touch on the overall macro climate from a Flextronics perspective as it helps to set the overall discussion. In general, the macro backdrop has not changed materially since our last earnings call. We would still characterize the environment as sluggish but demand has stabilized. In a theme carried over from our second quarter, we started the third quarter experiencing incremental slowness in demand and forecast. These trends continued into the middle of the quarter, but eventually we saw business firming up in the last month of the quarter. In fact, the month of December was the first time we haven’t seen a forecast reduction in several months. We still don’t expect a major correction on the horizon, but it’s fair to say that in the near term the technology supply chain will continue to face uncertainty and certain pockets of demand softness. In some cases, this is due to inventory adjustments and rebalancing, and in other cases the result of weakening end-market demand driven by macro factors or exogenous shocks to the supply chain such as the recent floods in Thailand. Our current quarter revenue decline of $551 million was almost entirely driven by our ODM PC exit. Despite our revenue decline in this quarter, the revenue performance among our top ten customers has remained stable. The working capital management continues to be well-controlled and quarterly free cash flow of $136 million allowed us to continue to repurchase our stock. During the quarter we repurchased $110 million worth of stock, or 3% of our outstanding shares. As Paul referenced earlier - I think it bears repeating - in roughly 18 months we’ve repurchased 15% of our total outstanding flow. Turning to our ODM PC business, we completed our exit of this business during the quarter on time. We shipped our last units during the month of November and recorded $187 million in ODM PC revenue for the quarter. There are no further financial impacts to be sustained by our operation associated with the ODM PC business. The ODM PC exit is one of the major changes we’ve been managing for the last couple of quarters and our profitability will improve significantly going forward as a result of the exit. I will discuss more of the details when I provide guidance later in the call. Please turn to slide ten. Before beginning with the performance of our individual business groups, I want to quickly take a minute to make a few statements about developing a trend in our overall portfolio businesses. In our most recent quarter, revenues from our high velocity solutions group amounted to 42% of our total sales, down from 46% a year ago. The percentage of high velocity business is expected to further decline as a result of exiting the ODM PC market and our focused efforts to rebalance our revenue away from high velocity business. We are aggressively managing our portfolio of businesses. We would expect this business segment to potentially decline an additional billion dollars from fiscal 2012 to fiscal 2013 as a result of the shift. Consequently, you should expect the remainder of our business groups, which accounted for 58% of our sales in Q3, up from 54% a year ago, to grow low double-digits collectively, both in fiscal 2012 and in fiscal 2013. In all of these business groups, we continue to generate strong bookings with both existing and new customers, which is supporting their growth rates. Ultimately, our goal is to rebalance our portfolio to reflect a 70-30% mix of business, providing a more attractive margin profile and strong free cash flow as we move into fiscal 13. Our integrated network solutions group totaled 37% of our sales during the quarter, consistent with last quarter. Revenue was $2.8 billion in the quarter, down 2% year over year and down 7% sequentially. This performance was in line with our expectations for a mid to high single digit decline as we saw weakness primarily attributed to inventory rebalancing across a couple of our largest telecom customers that was only partially offset by strength in new outsourcing wins and new product ramps. Next quarter, we expect revenue from integrated network solutions to increase low single digits sequentially driven primarily by new outsourcing wins and less of a headwind from the effects of inventory rebalancing at a couple of our customers. Industrial and emerging industries comprised 13% of total sales, up from 12% last quarter. Sales were $955 million, reflecting 4% year over year growth and stable performance sequentially. We tracked slightly off, behind our outlook of single digit sequential growth as a result of year-end inventory rebalancing, negatively impacting one traditional industrial customer and some softness in the office equipment market. As anticipated, our capital equipment business declined again. However, the decline slowed meaningfully to the high single digits from the 40% sequential drop the capital experienced in the September quarter. We believe our capital equipment business may have bottomed out in the December quarter. Our customers in this area are currently forecasting modest growth next quarter. This business generates an above-average operating margin given the product complexities, business cyclicality, and level of capital employed to operate the business. As a result, demand improvements in this area should translate well into our overall company profitability. We continue to see strong levels of activity with customers across our industrial and emerging industries group and booked roughly $285 million in new wins during the quarter versus $300 million in new wins booked last quarter, and now have roughly $1 billion in bookings to date for fiscal 2012. This compares with the $1.3 billion booked during fiscal 2011, so we remain on pace to meet or slightly exceed our fiscal 2011 record bookings total. For next quarter, we believe this group will have stable demand as modestly improving capital equipment outlook and strength in various smart grid programs is offset by product transitions within our solar portfolio and negative seasonality impacting our point of sale customers. Our reliability solutions group is comprised of our medical, automotive, and defense and aerospace businesses. It comprised 8% of total sales, up slightly from last quarter’s 7%. Sales grew 2% sequentially and 22% year over year, establishing yet another new quarterly revenue record. Overall sales in this group were slightly above our expectations for flattish performance. The revenue growth momentum in this group should continue and remains primarily driven within the medical and automotive areas. Next quarter we forecast this business to be in the low single digits sequentially, which equates to approximately 20% on a year over year basis. Our medical business grew single digits sequentially and rose roughly 20% year over year, let by the strength in diagnostics and medical equipment. During the third quarter, we booked roughly $120 million in new programs, which brings our year to date bookings to $270 million. In addition, our sales pipeline is holding firm at approximately $650 million across the various areas of the medical industries we serve. Our automotive business continues to be a strong performer for us. While this quarter saw flat revenue levels on a sequential basis, year over year growth remains strong at roughly 20%. In general, this business is on pace to grow over 30% for this fiscal year and [unintelligible] $1 billion in annual sales. We continue to see signs of improving automotive production. In addition, we continue to broadly penetrate tier 1 and tier 2 OEMs and our [win rate] remains strong in areas like in-car connectivity, ambient lighting, LED electronics, and power electronics. High-velocity solutions comprised 42% of total sales, down from 44% last quarter and revenue declined to $3.2 billion from just over $3.5 billion last quarter. This business group includes mobile phones, consumer electronics, game consoles, printers, and computing, and it contains the ODM PC business which we exited during the quarter and also includes the EMS PC business that remains. The business group experienced the largest decline in the quarter, dropping 10% sequentially and 12% year over year due to our ODM PC exit. Our mobile consumer businesses rose mid to high single digits on a sequential basis. Strength from multiple new program wins with our largest mobile customers, combined with favorable seasonality, positively affected a handful of customers in consumer electronics who drove the majority of the growth. In computing, our business experienced a significant double digit sequential decline of over 40%, driven by the planned exit of our ODM PC business. Overall, next quarter we expect our high-velocity solutions business to decline 30-40% sequentially due to having no further revenues associated with the exited ODM PC business and the negative impact of seasonality on the mobile and consumer business. In addition, due to the significant ramp we experienced with our largest customer in the September and December quarters, we are expecting a more significant than usual decline in percentage terms as production returns to more normalized levels. Next I want to provide an update with regard to the operations and performance of other businesses. Our component businesses, which include Multek, Vista Point, and Flex Power, experienced relatively flat quarters sequentially in terms of revenue as we expected. From a profitability perspective, we realized a loss, down from breakeven last quarter, and below our expectations. While we anticipated roughly breakeven performance this quarter, our components business profitability reflected mixed performance as our Vista Point business saw slightly higher losses due to revenue declines, and within our power business we continue the be burdened by taking aggressive action to further rightsize this business. In response to the current financial pressures, we elected to take even more aggressive actions in order to drive this business to its appropriate operating earnings levels. We have focused our efforts on aggressively realigning and optimizing the operations, resulting in various rightsizing activities across these businesses. These actions include activities such as closing facilities to further simplify operations and improve execution. Overall, we anticipate executing these actions over the next two quarters, with some of these actions impacting this past quarter. In the March quarter, we expect both Multek and Vista Point to see modest growth, offset by a slight decline in Flex Power, which is coming off a significant quarter of sequential revenue growth. We’re looking to power a substantial and optimization activities in the next two quarters will position this for strong operating results in FY13. As a result, overall revenue for the components will be flat in the March quarter. We expect to be operating at breakeven. Our services business, which is focused on various post manufacturing and aftermarket activities, saw its revenue decline single digits sequentially this quarter. Operating margins remain well above corporate average. In addition, a number of significant new program wins are set to begin and ramp late in our upcoming quarter and should position our services very well into fiscal 13. Now turning to our guidance on slide 11. For our fourth quarter, revenue is expected to be in the range of $6.3 billion to $6.6 billion. Our fourth quarter revenue reflects no revenues from ODM PC as we have completely exited this business, which had contributed $187 million of revenue in our December quarter. Our revenue guidance reflects a sequential decline in sales of 12-16%, or 14% at the midpoint, which reflects the combination of the reduced revenue contribution from exiting ODM PC and seasonal declines in our high-velocity solutions business growth. Our adjusted EPS guidance is $0.22 to $0.24 a share, which implies a 3% adjusted operating margin at the midpoint and is based on an estimated weighted average shares outstanding of approximately $700 million, which incorporates a full quarter benefit of share buyback we completed during our third quarter. Quarterly GAAP earnings per share are expected to be lower than the adjusted earnings per share guidance I just provided by approximately $0.04 for intangible amortization expense and stock based compensation expense. This concludes my comments. I’d now like to open the call for Q&A. Operator, can you please begin that process?

[Operator instructions.] And our first question is from Sherri Scribner with Deutsche Bank. Your line is now open. Sherri Scribner - Deutsche Bank: I was hoping to get some more detail on the network solutions group in terms of the inventory correction there. A lot of companies have talked about an inventory correction. It sounds like with your guidance you’re expecting some of that inventory rebalancing to be done. Do you think this quarter was the bottom in that segment? Do you think the inventory has been worked through, or gets worked through in March and returns to normal in June? What is your outlook there?

I think probably from an industry standpoint it’s going to stay pretty soft. I actually think the inventory correction piece of it may be over, or at least substantially over. I think from an inventory standpoint, as I mentioned, I think it’s probably continuing to be soft in the next quarter. We guided up single digits at Flextronics, into the March quarter, because we have some substantial new bookings, but I think that’s running different than industry itself. So we’ll be up based on new bookings, but I think the industry is going to continue to be soft into March. Sherri Scribner - Deutsche Bank: And then in terms of the supply disruptions related to the Thailand floods, did you have any impact from that this quarter?

Yes, we did, and didn’t call it out separately. But we probably lost about $100 million of revenue, we anticipate. If we think about this next quarter, in March as well we would probably anticipate roughly the same, maybe slightly less. But it was about $100 million for the December quarter. Sherri Scribner - Deutsche Bank: And then just quickly for Paul, in terms of looking at the guidance, the guidance seems to imply an operating margin of about 3.1-3.2%. Is that the right way to think about it?

We probably ran about 3.0-3.1%.

Our next question is from Shawn Harrison with Longbow Research. Your line is now open. Shawn Harrison – Longbow Research: I wanted to first off just get back to the comments on reducing the high velocity exposure. Right now you’re seeing, I guess, what you said - seasonality coupled with return to normal production schedules for your largest customer. But how do you get that down to 30% of sales going forward? Is it not bidding on programs? Is it cutting back on existing programs? Any color in terms of how you reduce that mix in addition to growing the other percentage of the business would be helpful.

Well, one thing, it’s the other businesses that are helpful. If we look in FY13, I mentioned the comments that 70% of the non-high velocity business we expect to achieve in FY13. And we do expect that to grow at a double digit rate as a bundle. So that helps it certainly. Once we take out the ODM PC, that helps it pretty substantially. And then we just expect to generally across the board expect to be a little bit more picky about that business. We’re unhappy with the variability in the high velocity segment and we’re looking to reduce the variability as a company directive as we go into FY13. So I just think we’ll just prune it a little bit between those three effects with the 70% growing at a double digit rate, the ODM PC coming out. And probably with a little bit more selective pruning I think we can move our way to a 70-30 mix. Shawn Harrison – Longbow Research: And then on the components business, if we assume revenues are flat into the June quarter, with the restructuring actions you’re taking, what would EBIT margins be if you had all those costs removed from the business?

It certainly moves into profitable territory for us post-June. We’ll take six months to finalize the restructuring activities, mostly in the power division. And then the back half of the calendar year, we should be able to move the profits up toward our goals, which we’ve stated before, as a bundled 4%. Shawn Harrison – Longbow Research: The June quarter, would you expect the business to be profitable?

No. Not the June quarter. Well, operationally it will be profitable, but we have some restructuring activities in the power business that we’ll be executing in the June quarter. But operationally they’ll be profitable. Shawn Harrison – Longbow Research: And I guess unfortunately it’s been a bit of a broken record in terms of getting to breakeven and surpassing it with this business. Do you think the cuts you’re making right now are going deep enough, some of the operational changes you’re making, or is it something that we get into the summertime and there may be additional actions?

I think the comment about our broken record is certainly appropriate. It’s obviously very, very frustrating for us. This is a big business group. If you take the business group in total it’s about 25,000 people, so it’s not insignificant. We’ve already closed several factories. We’ve moved inland with one of the factories to try to drive costs down. And as we look at it, we think we can take another couple factories out. And that’s not something that we anticipated about a quarter ago. And part of the reason to go take out another couple factories is we’re actually quite pleased with the simplification and the optimization that we’re seeing by taking the first couple factories out. We think we can take another couple factories out and grow the revenue simultaneously in FY13, which between the two we think can have a pretty substantial effect. So do we think it’s enough? I think we’re just going to have to wait and see, because I don’t want to be predictive about it and not make it. But in the power business, we’re going to go from five factories to two factories. And in the camera module business, we’re going to take out a factory. We can’t hardly take out any more factories to make them more simple, more easy to execute, improve the operational excellence. So I think there’s not much else to do once we get beyond this point. And like I said, we’ve actually been encouraged. You know, we feel bad coming into the call and saying you’ve got to wait another six months, but alternatively, we’re pretty encouraged by the steps that we’ve already taken, and the fact that we’re really excited about getting to a world-class operation, and we think we can take the steps to go do that.

Our next question is from Brian Alexander with Raymond James. Your line is now open. Brian Alexander – Raymond James: I guess just a follow up on components. Not to beat a dead horse, but could you size the impact of the charges that you took in the quarter as well as going forward, so we could better understand the underlying components, profitably, excluding restructuring? I think last quarter the charges were about $10 million. And then I think you also said Vista Point lost money too, which I believe was also the case last quarter. Did those losses get worse? And could you remind us of the issues that you’re having in that part of the business?

Yeah, the overall restructuring charges, if we include the December quarter and March and June going forward, is roughly $25 million. We spent probably around about $8 million in the December quarter just passed, and we’ll probably now spend the balance over the next two quarters. So that’s kind of the size. These are not massive numbers considering the size of the company, but it certainly affects the performance significantly as a bundle. Brian Alexander – Raymond James: And then just on the Vista Point business, what’s going on there? And when do you think that can be back to breakeven?

The Vista Point business really is more of a revenue driven-related activity than it has been more of a restructuring-related issue for them. The December quarter revenues were light as it transitioned into some new program wins on some products that will come now through in this next March and June quarter. So really it just had a bit of a pause on the revenue side, but they have all the new wins now to take the revenues up and the profitability up in the March and June quarters. Brian Alexander – Raymond James: And if I look at the margins in your core EMS business, so excluding ODM and components, it looks like they would have been about 3.2% in the December quarter and if I look a year ago same quarter, they’re around 4%. And this is while revenue on an apples-to-apples basis - again, excluding ODM and components from both quarters - has been pretty consistent. So I’m just trying to get a sense for why the core business, core EMS, is seeing this level of margin erosion on kind of flat revenue and what you think are the major reasons why your core EMS margins - again, 3.2% or so - are well below some of your peers with a very similar mix.

I don’t think a year ago we were at 4% margins on the core business. I think we would have remembered that if it were. So we’ve always hovered around a core business level of kind of a 3.5% level. But the components businesses back then were dragging us down a bit. You know, flat revenues year over year, but significant changes in terms of mix. I think that’s something that we’re always impacted with on a go-forward basis. We think that will stabilize out, like Mike said, with the 70-30 split you get more stability from the margin basis. Really, to the competitors, they just have a different business profile, I think. And we’re a far bigger company and much different issues than what they have. So I don’t really want to call in comparisons with them. But we think now we’ve exited to ODM PC business going forward on the margin side to get to 3.5% and beyond then I think with the 70-30 split of high margin low margin business, we certainly have a business mix that will enable us to do that.

One of the other things that I’ll add is that in our industrial and emerging group we had a very significant down trend of revenue in the capital equipment business. And we actually called that out and itemized it on the last call last quarter. So it’s a pretty significant hit to our profitably. We had that hit last quarter. We continued to have that down side from revenue this quarter, where it continued to go slightly down by single digits as opposed to 40% in the September quarter. But as we go forward we see this strengthening pretty significantly, so we actually see that entire business group changing pretty substantially, and I think you’ll see that will push our margins up pretty nicely as I mentioned in my prepared comments. Brian Alexander – Raymond James: And Mike, the drag from that is like 20 to 30 basis points from that part of the business relative to where you were a couple quarters ago?

Hold on a second. We’re just trying to check if that’s correct. Yeah, it probably is. That’s probably correct.

Our next question is from Amitabh Passi with UBS. Your line is now open. Amitabh Passi – UBS: Mike, again, at the risk of beating a dead horse, how long do you think you continue to try with this vertically integrated approach? And is that still the right approach? At what point do you say probably not worth being a components business and contemplate some other actions, either exiting that business or doing something else with it?

Well, I think we’d always consider all the strategic options open to us. So I don’t ever think we would just not consider the possibilities of doing other things. It’s obviously disappointing and we continue to have very strong bookings where we’ve got into a bad cycle with the camera module business that’s actually reversed itself. The bookings have been exceptionally strong this quarter. They’ve been exceptionally strong really across the whole component portfolio. And it’s one of the reasons we’re taking actually even more aggressive actions to close and simplify and optimize before all those revenues start hitting. But I think per your comments, we for sure will look at - and always have continued to look at - the possibilities of what other strategic options we have available to us. Amitabh Passi – UBS: And then just as a follow up, I noticed you recently hired a chief procurement officer. Just wondering, is that a new position? Did he replace somebody else? Any specific mandate for Mr. Linton?

Well, we just hope to take our procurement activities to the next level. So we view him as the top professional in the field. We did have a chief procurement officer previously. We’ve now redeployed him to do some other activities, and we’ve given Mr. Linton the top spot. So we actually have very, very high expectations for visibility to contribute to improving our margins. So this is just a case of as we find the best people we can in industry to bring them on and hopefully it’s going to have an operating margin improvement.

Our next question is from Sean Hannan with Needham & Company. Your line is now open. Sean Hannan – Needham & Company: So you’ve talked about some more pointed restructuring efforts, some of that obviously around power within components. Overall though, when you step back, can you share with us what’s your blended utilization right now and then what are the levels at the lower end of the utilized facilities versus the higher end? And can you actually take some efforts in order to tweak some of those facilities as well?

Well, that’s probably all different answers. In BPT we’re probably running roughly around 50% utilization. So more of a load there has a substantial impact. In Multek, we’re probably running 70-75% utilization, so very, very close to running where - it really should run around 90%. Again, it would be helpful to have a strong book of business. One of the things we saw with Multek is as the revenues for a lot of the companies got slower in the December quarter, we actually had a decelerating book-to-bill in that business. So we’re starting to see that reverse, and we actually expect March to be higher than December, which isn’t typical. And the last thing is power, and to tell you the truth, power is running at pretty high utilization. Certainly from an equipment standpoint it’s probably running close to 90% utilization. So activities with power are really to simplify and optimize and drive to world class as opposed to meeting the load to get to a certain utilization. So we actually expect power to even grow a good 25% or 30% next year. So we’re not closing factories because we don’t have load. We’re closing factories to consolidate our efforts so we can get to a world-class level. Sean Hannan – Needham & Company: Then a follow up. Just in terms of notebook going away, the progress that you intend to make around components, at what point do you think - and would this happen at some point perhaps in mid-fiscal 13 - would you have a line of sight to be able to sustainably get your gross margin into that 6% range? Any thoughts around that would be helpful.

So you know, as we’ve moved this portfolio, and we approach the 70-30 split - last year at one of the analyst meetings we said that to hit 3.5% we needed $7.5 billion of revenue, a 60-40 split of high margin-low margin business and components earning a decent rate of profitability. we now actually think, as we have changed this, that we can achieve the 3.5% with less revenue, more like $7 billion a quarter on a 70-30 split, high margin-low margin business, without components making profitability levels that they would. So if they did, that would be over and above the 3.5%. We certainly don’t want to have them losing money, so they want to be at a breakeven level, but you know, $7 billion, 70-30 split, and 3.5% is very achievable in this second half of the fiscal 13 for us next year. And that’s what we’re heading for.

Our next question is from Lou Miscioscia with Collins Stewart. Your line is now open. Louis Miscioscia – Collins Stewart: I’ve got two questions, and let me apologize if I’m repeating someone else’s question. I came on the call a bit late. Can you just give the revenue base of the component area on a quarterly basis? And I know you talked a little bit about the margins, but where actually are the margins right now?

Revenues are around $500 million a quarter. We had a slight loss in the December quarter, absent the restructuring that we took, which is around $8 million. It will break even in the March quarter with about $500 million of revenue again, as a bundle. Louis Miscioscia – Collins Stewart: Switching over to components, hard disk drives, Mike, you mentioned that the shortages in Thailand and I would guess maybe it’s in the hard disk drive area, what products got most affected? And you mentioned also the shortages continuing in March. Did you get any visibility when it’s going to get better?

Well, we think it’s actually going to get a little bit better in March, and I suspect it will get even better in June from that standpoint. So we’re anticipating while in March it will still be significant, over time I think it’s going to start to mend itself. So I think it’s in the process of being fixed. And most of the business was in the storage business. There are hard drives, surprisingly, in a lot of different things, even on down to high-end printers that end up with drives in them. So it’s interesting how many products really have hard drives in them. But most of it was in our storage business. Louis Miscioscia – Collins Stewart: Would you say it was tier 1 storage kind of products or was it more tier 2 or tier 3?

I think it’s a blend. I’m looking at my list of which products were affected, and it’s kind of a mix.

Our next question is from Steve O'Brien with JP Morgan. Your line is now open. Steve O'Brien – JP Morgan: Just wanted to ask, with the handful of EMS companies having reported here over the last couple months, it seems like everybody’s talking about program wins and communications networking, etc. It seems hard to imagine everyone’s going to be above average. But can you talk specifically about whether some of these wins come online next quarter, the quarter thereafter, in terms of maybe the pace of revenue recovery?

That’s hard to gauge, because you’ve got this continuous flow of new wins coming in. I think the way to think about it is if you look at the bundle - Paul mentioned a 70-30, the 70% of more high complexity business and 30% of more high velocity business - we would expect to finish close to a 10% growth rate for that 70% for FY12. And we would expect to be in the double digit range in FY13 in that 70% bundle as we go forward. So the variability that we keep trying to explain is kind of the ODM PC and then there’s some product launches and another one of our high velocity mobile phone customers that complicate the linearity of our business. So once you separate those out - but if you look at the 70%, you have kind of a nice, linear increase in revenues. And like I said, it’s 10% in FY12 and it will probably be something similar to that in FY13. But it’s all different times that those programs hit. Steve O'Brien – JP Morgan: Maybe just looking back at the quarter then, I think that the INS business was more or less in line with your expectation, whereas others maybe had more challenges. Can you point out some of the strengths, and I guess weaker areas, then, in the December quarter?

Well, if you look at the December quarter, we had industrial and emerging - I kind of went through that in my remarks. Steve O'Brien – JP Morgan: I guess I was looking specifically just at the INS business.

Yes, the INS business was down like mid-single digits. But we expect almost a full recovery back into March. So we expect it to go up mid-single digits in March. And that’s certainly because of a new program win that we have in particular that starts kicking in. And then we would expect June to be a little bit higher. So I think from the INS standpoint, we clearly have industry softness, and we clearly have some inventory rebalancing. I think that’s reasonably consistent with some of the comments you’ve heard at some of the other contract manufacturers, and then certainly consistent, I think, with the telecom industry. As we go into March, we have new bookings that drive our numbers up. We don’t think it’s necessarily an industry recovery. We just think we have some pretty nice bookings that are helpful there. And so we’ll see some growth in March. And then we would expect to see the INS group as a whole for FY13 relative to FY12 hopefully run about a double digit rate, call it a 10% growth rate. Steve O'Brien – JP Morgan: Can you just provide a couple more details on this industrial and emerging industries program win and the capital purchase that happened? What industry are we talking about?

Well, that’s the hardest one to say because it’s really across the board. In the September to December quarter, we were roughly flat in revenues. And then next quarter we actually expect to go up pretty substantially, kind of like a high single digit number. And we would expect to go up high single digits in June. This has the most variability in the bookings. It has the most amount of customers. It has the most amount of unique new wins, and it tends to be the smallest revenue. So it really tends to be a blend across a number of different businesses. We have clean tech that we expect to recover pretty nicely. I mentioned capital equipment, which we expect to recover nicely into March, and also more recovery into June. And so it’s really a blend of a lot of different programs. It’s hard to isolate. But that entire group we actually expect pretty nice growth as we go into FY13. Steve O'Brien – JP Morgan: I guess I thought there was about a $50-60 million purchase this quarter that related to a new program that was in acquisitions in the cash flow?

Yeah, that was in INS. A large part of what’s driving that revenue increase in INS, because when you get mid-single digits in that INS group, which is already about $12 million, it’s a pretty substantial amount of revenue. So what it is is the purchase of inventory with a customer. It’s basically almost all inventory with a customer that we just took on a significant amount of their work very rapidly, actually over this quarter. Steve O'Brien – JP Morgan: I guess just lastly on the share count maybe, I think Paul you addressed - what is the number you’re using for the EPS calculation in the next quarter in terms of the share count?

It’s roughly 700.

Our next question is from Jim Suva of Citi. Your line is open. Jim Suva – Citi: This may be a little bit of a difficult question, but let me set it up by I’m looking at year over year earnings growth, specifically the March quarter that you forecasted to to the March quarter a year ago. And we’re kind of looking for improvements at Flextronics and looking for earnings per share growth. And when we consider March 2011 we included the ODM PC business, which was nonprofitable, and then this March outlook of 2012, which excludes the PC business, it actually looks like your year over year earnings per share would be down if you did not buy back stock. So in essence, any EPS growth looks like it’s stock buyback-driven rather than core operations despite selling the PC business or exiting it. Can you help me understand if that’s correct? And if so, is that the future of the EPS growth, or organically, when should we see core operations start to drive EPS growth?

I think you rightly said it, Jim, that for fiscal 12 over 11, a large part of the EPS has been as a result of the share buybacks that we’ve experienced. Because the core operating performance was significantly offset by the ODM PC losses. You can see we had roughly $100 million of ODM PC losses that have impacted us in the year. So going forward on 13, obviously the ODM PC losses drop away. Share count is what it is. And so the growth really is coming from the core business, which is the profile we would expect for next year.

Jim, the other thing too is the fourth quarter of last year had very minor ODM losses, and I don’t know if you’re contemplating that in those numbers or not. Jim Suva – Citi: Okay, we can revisit it offline, but I believe March last year you missed expectations, so the comparisons look even easier. But we’ll take it offline. My quick follow up, you know, Kodak announced bankruptcy today. Any exposure there? And the SG&A line came in higher, probably because the PC ODM business yet interest expense came in lower. Can you help us with the Kodak impact and SG&A and interest outlook?

On Kodak, unfortunately we’ve been through this play before with a couple of customers, so we’ve spotted the signals. Not a surprise to most people, anyway. We remain very close with them and very frequent discussion over the last few months, working on ways essentially for ourselves to understand what’s going on a little bit better and to somewhat work the exposure. They’re not a very big customer of ours. They’re kind of down, I think, number 40-something in terms of the customer list. Round about $100 million of revenue for us. So nothing great. So our exposure isn’t big. When we looked at it this quarter we were kind of anticipating something and with them filing - for their US entities - chapter 11, our exposure is predominantly not with their US entity. 25% of our exposure is probably with their US entities, 75% is outside the US entity. And so we have - as they’ve written in the filing - a three or four million dollar AR exposure. And we took an additional reserve in the December quarter for a few million dollars to make sure we cover anything like that that was going to happen. So we think we’re well covered from the AR perspective. As we’ve worked with customers in the past that have gone through situations like this, the inventory that we have is good inventory. It’s inventory that they want. They want to have us keep producing this inventory. This is also inventory that’s more aligned with their non-US subsidiaries and so we anticipate having any deal with them where we can not have any exposure on the inventory side. So net-net it’s a small customer and negligible exposure that we have covered. On the SG&A side, you’re right. It was up because of the ODM PC cost exits and the increase that we didn’t expect, but that normalizes now back out and we’ll be in that kind of 180-190 range for SG&A going forward. Jim Suva – Citi: And interest expense?

Interest expense, $15-20 million. You know, we’re not anticipating any foreign exchange gains. I know we say that every quarter, but it’s not something that we plan on. And so $15-20 million is the operating interest and other expense line item.

Our next question is from Amit Daryanani with RBC Capital Markets. Your line is now open. Amit Daryanani – RBC Capital Markets: Just a question on the buyback. You guys have obviously been fairly active on it. I’m just curious, how should we think about the future capital allocation process? Is there the expectation to commit X% of your free cash to buybacks going forward?

No, I don’t think so. For us, we have a very strong free cash flow. Last four quarters we’ve had positive free cash flow in the range of $550 million, so it’s very substantial, and over 12% free cash flow yield, I think. The year before it was like an 8% free cash flow yield. So the future of the business is it does throw of strong free cash flows, and we expect that to continue next year. We expect to increase free cash flow at the rate if not greater than the earnings increase. So our predominant focus for free cash flow is to support the growth of the business, the organic growth of the business. So working capital, capital expenditures, etc. And that’s what we’ll continue to do. However, beyond that, we have some strategic options for us, whether it’s divestitures, M&A, those kinds of things. They’re all pretty small. They’re not big numbers, but nevertheless, that’s a priority next. And then after that, it’s going to be looking at some capital allocation with a capital structure, whether that’s debt repayment, or that’s share buybacks. You’ve seen us be opportunistic in the share buybacks because we’ve been attracted to the price that’s out there and we’ve generated strong free cash flow to support it. And as you can see, we achieved an average price of $5.88 in the quarter and today’s price was substantially higher than that. So not only is it good for EPS, you actually get good accretion out of it, because we’re very opportunistic. It’s not a buyback program that we initiate as part of future earnings generation. It’s more us just being opportunistic at the price. Amit Daryanani – RBC Capital Markets: Fair enough. And your buyback program has definitely been very successful so far. Just maybe on the component business, I want to look at it a different way. Is there a certain small percent of customers that are potentially driving all the losses in the segments? I’m trying to maybe get a sense on do you think this issue may just be more pricing-driven versus not having the right cost structure or footprint?

No, we actually think the pricing structure is right, and we think it’s more world-class operations, simplicity in operations, and utilization. We actually don’t feel that we have a pricing problem. Amit Daryanani – RBC Capital Markets: All right. Just finally, Paul, the $72 million cash payment for purchase of assets for a networking customer I believe you called out in the earlier part. Did you guys take on any plant and equipment as well? Or was it just purely for inventory?

No, there was some fixed assets, you know, unique to this program that we would take on, which is pretty normal for us. And we’re working the whole transition now over the next three months. So great new program, very excited about it, and will provide some meaningful growth for the INS business.

Our next question is from Brian White with Ticonderoga. Your line is now open. Brian White – Ticonderoga: When we look at your largest customer, you said it was over 10% of sales in the quarter, can you give us more of an exact percentage. Is it more in a 10-15% or 15-20% range?

It’s the 10-15%. Brian White – Ticonderoga: And I’m curious, smartphone market, obviously becoming more competitive. Number one, do you have protected contracts in place with that customer if challenges occur? Years ago there was Nortel. Second thing is how involved are you with vertical services with that customer, or is it all assembly?

First of all, I don’t want to comment on the specific contract terms with any particular customer, so just rest it to say we have very, very normal contract terms with that customer. But I don’t want to get into specifics, and I don’t think it’s appropriate for us to get into specifics. And I would call the vertical integration of that customer to be not significant. I would call it not significant. Brian White – Ticonderoga: It’s more assembly?

It’s very, very heavily assembly.

And our next question is from Craig Hettenbach with Goldman Sachs. Your line is now open. Craig Hettenbach – Goldman Sachs: Mike, can you touch on just trends in customer outsourcing? Just we’ve been through a couple economic cycles here, and anything you’re seeing that points to increased outsourcing in any particular verticals as we move forward?

I think it’s just the same as what you’ve been hearing for quite some time. I think industrials and medical continue to look for ways to save money and outsource as they get under new challenges from industry. I think outsourcing in the telecom datacom industry is pretty mature, so there’s just not a lot of new outsourcing in those different fields. You may find additional outsourcing as some of the Chinese telecom and datacom guys become significant as they penetrate the rest of the world. So I think rest of world provides an opportunity for some of the growth there with the Chinese companies. But I think it reasonably mature. And I think smartphones, as you know, is heavily outsourced today with the exception of the Koreans and in some cases the Taiwanese. So on average you’ll find Koreans and Taiwanese viewing manufacturing as a core competence and once you get beyond that into US and European companies they’re reasonably heavily outsourced. So I don’t think there’s a trend toward outsourcing, either in networking, datacom, telecom, or smartphones. And I think the trend that is positive for outsourcing is more reflected in a lot of the industrials, a lot of the clean tech, a lot of the medical, a lot of the automotive. Craig Hettenbach – Goldman Sachs: Okay, and just as a brief follow up, any update on wage inflation issues and ability to pass that through to customers?

Well, it’s the same challenge it always is. We have wage inflation. It’s relatively significant in China. We do anticipate - I think we said this in the call maybe a couple of years ago - we do expect probably a 15% wage increase every year, and we do expect probably some negative currency affect associated with that. So I think that’s just how we have to deal with products. They get priced into new products very rapidly. The ability to change price on existing products is more challenging, and we do the best we can to go and work those price increases. And once you get outside China, I think it’s more typical. I think you tend to see 5% or 6% wage increase in some cases. Like in Mexico the currency has been very, very weak against the dollar. So it hasn’t been an impact. Obviously a lot of the currencies in Europe are driven to the dollar, so it’s favorable from that standpoint. So I think the real challenge is in China, and we’re going to have that challenge every year for the next five years - at least that’s how we think about things, how we assume it. And the challenge of passing it on is difficult. For sure we get it in the next product run.

Thank you everybody for joining us. Our transcript will be available on our website tomorrow, as well as the replay. And if you need anything else, give us a call. Good bye.