Sanmina-SCI Corporation (SANM)

Investor and Analyst Day Conference Call

November 17, 2011 8:30 a.m. ET

Executives

Jure Sola – Chairman, CEO

Sundar Kamath Ph.D. SVP, Technology

David Dutkowsky – EVP Communication Network

Mike Underwood, President of Defense and Aerospace Systems

Hamid Shokrgozar – President, Viking Technologies

Marco Gonzalez – EVP, EMS Americas

Bob Eulau – EVP, CFO

Analysts

Jim Suva – Citigroup

Juan [Inaudible] – Bank of America/Merrill Lynch

Craig Hettenbach – Goldman Sachs

Presentation

Operator

Good morning everyone. So if we could go ahead and take our seats, we’re going to get started. Let’s walk through a couple of housekeeping items. First off, if you could place your phones on vibrate, I’m sure most of you already do. But if you could do that for us, that would be great.

Secondly, we will be taking a 15 minute break in between some of these presentations. In that 15 minute break, I welcome you to go ahead and look at some of the products that we have here today, as well as meet with the management that we’ve brought with us.

We will conclude the day with a lunch, which gives you an opportunity to sit with our management in a smaller group setting. So that’s another plus thing for you to do. Bathrooms are out the door, down the hall and on the right if you need to use the restroom.

So we’ll go ahead and get started. The first thing we’re going to do is start off with the Safe Harbor statement, and legally have to read that to you.

Certain of the following statements including the discussions, regarding our first quarter fiscal 2012 outlook and future prospects constitute forward looking statements within the meaning of the Safe Harbor Provision of the section 21-E at the Securities Exchange Act of 1932. Actual results could differ materially from those projected in these statements as a result of a number of factors, including a deterioration in the markets for the Company's customers' products and a resulting in a decrease in the Company's customers' ability to pay for the Company's products, which therefore could reduce the Company's revenue. Customer bankruptcy filings, which could cause the Company to record charges to its earnings; reduction or cancelation of a customer orders that reduces forecasts for the quarter;  the sufficiency of the Company's cash position and other sources of liquidity to operate and to expand its business; an increase in short-term rate that could increase the Company's interest expense; component shortages, including those arising from the natural disaster in Japan and, potential floods in Thailand; impact of the restrictions contained in the Company's credit agreements and indentures upon the Company's ability to operate and expand its business; competition negatively impacting the Company's revenues and margins; any failure of the Company to effectively assimilate acquired businesses and achieve the anticipated benefits of its acquisitions; the need to adopt future restructuring plans as a result of changes in the Company's business, with which increase the Company's costs and decrease its net income; and the other factors set forth in the Company's annual and quarterly reports filed with the Securities Exchange Commission.

In addition, during the course of today’s presentation, we will refer to certain non-GAAP financial measures. [inaudible] for historical periods. Such information excludes charges or gains related to stock base compensation expenses, restructuring cost including employee severance and benefit cost, and charges related to excess facility and assets. Acquisition and integration cost consisting of cost associated with the acquisition and integration of acquired businesses into our operations. Impairment charges for goodwill and intangible assets, amortization expense and other and frequent or unusual items to the extent material, or which we consider to be a non-operational nature in the applicable period. Reconciliation of these measures to their GAAP equivalent are contained in our fourth quarter fiscal 2011 earnings release and a slide presentation which is available on our website and a copy of which is available at this conference. The Company is under no obligation to (and expressly disclaims any such obligation to) update or alter any of the forward-looking statements made in this presentation, the press release, the conference calls or Investor Relations section of the website whether as a result of new information, future events or otherwise, unless otherwise required by law.

I’d now like to turn the conference over to Jure Sola, Chairman and Chief Executive Officer.

Jure Sola

Thanks, Page. I’m happy that Page’s doing the fun part of the presentation. So good morning, and thanks for coming and joining us today. I think we’re going to have a busy day, probably a little bit longer than typical, but since you guys didn’t see us for a long time, we felt it would be a good time to go with the longer version. So we brought some of our key management for you to really get to know. And I know some of you already walked around to look at some of the products that we brought with us. Hopefully, we’ll continue to do that because sometimes these products can tell a lot more than I can up here.

So with that, what we really want to do is focus today on a long-term. We’ve been, I’ve personally been in this business for many years, a lot of good things and bad things happen. But I think today we have something that we’re very proud of, and we’re going to share that with you, and how we’re going to build this company going forward.

We’ll introduce our management to you so you’ll get to know them. We’ve got some key guys that are running some of our biggest operations around the world. But the most important is really, again, go deeper for you to really understand who we are. I really believe that Sanmina story is kind of misunderstood out there. And hopefully today you will understand it better as we share our technology, our products, services, our global operational capability. I think you’re going to find out we got a lot more, and hopefully that allows you to evaluate us, to see what that investment opportunity Sanmina really is.

So with this, what I’d like to do is now introduce our management, and I’ll start with next speaker of [inaudible]. [inaudible] is responsible for our engineering and technology strategy, and he’ll share that with you today. Also brought in David Dutkowsky, he’s been with the company for a long time. He’s Executive Vice President of Communications. [Inaudible] he’ll talk to you about communication business, our Optical business. He’ll give a lot of details what’s going on there.

Also, we brought with us Mike Underwood, newly hired President of our Defense and Aerospace. You know, he worked for us before he left us. And we brought him back to run this new division, and I think he’s very excited. I think you’re going to love his story.

Also, another exciting business of Sanmina-SCI is what we call Lighting Technology, basically memory and Solid-State Drive. I mean the Shocker buzzer, I have a tough – I always pronounce it, but I think I’m okay. You’ll forgive me. So he’ll talk a lot about the memory products. A lot of solace state, what’s going on there and how is he going in his division.

Also, I brought Marco Gonzalez, our Executive Vice President of America. Marco has been with the company for many years. He runs our North America, Latin America operations. But he’ll talk about global, global strategy of our EMS business, our capabilities and give you some more details in how we do things, how we service our customers.


Then of course our CFOs here, Bob Eulau. We’ll talk about financials and talk about the future. And we’re going to share with you, because I strictly believe that there’s a lot of opportunity here to really improve in the margin.

And of course then I’ll talk about our strategy as much as I can and give you a better understanding. Addition to the speakers, we brought in additional – a couple individuals, Charlie Mason runs our Business Development for Medical, and also Ed Porter, our new hire President that runs our interconnect division which is basically printed circuit boards and the backplanes.

So with that, let me start. First of all, you all most of you know me for many years. Been in this business since 1980. I’m one of the co-founders. On the positive side, I’m still having fun. We went through a – if you’re EMS industry, especially in the last ten years, we’ve seen a lot of good days and some tough days. And we’re going to share with you most important of where we are today and how we’re going to go to the next level.

Our company’s well set up globally, we are in 18 countries, approximately 45,000 employees. But I really, I want to focus in on new strategy we view today, how we differentiate, what we are driving internally, which is really the technology, the product. You know, we’re not just a EMS company, and we’re going to share that with you, and some of our other services that we’re expanding to.

Also, we’re going to share with you our customers. We have a – I grew up in a business development world and we do have a customer base that almost like you hate to say it, but we don’t need all those new customers. We’ve got enough customers right now, we just got to grow what we have.

At the same time, we’re always looking for new niche markets for us, but we’ve been focusing on our key markets and I’ll share with that, that with you today. Now let’s talk about our strategy. We’ve been – some of you have been talking the last two months, you ask a lot of questions. And we felt that it would be a good time to kind of go deeper so that we can share much as we can.

First of all, what are the key most important parts of our strategy. And I mentioned just a few of them all ready. It’s the markets that we believe have a lot of opportunity for growth. And also, the markets that we’re well positioned, we’re well recognized, and our customers. We attract our customers because we have a great offering. So when you look at the customer base, that means diversified. And this is also – our goal is to have a sustainable customers. And we’ll talk a little bit later on. Booking business is easy, but booking the profitable business and sustainable business is going to be there for many years, it’s a little bit more difficult. So it takes time to create that relationship with those customers. I’m very happy what we have accomplished, especially in the last two or three years.

Also we’re going to share with you a lot of differentiation. How do we differ, or do we differ from some of our competition, small and large. And how do we compete with the small and large, both from a technology point-of-view, products point-of-view, and a service point-of-view. And how do we focus in expanding and growing businesses. In today’s world, technology changes so much. And unless you’re involved in a right project at the beginning, you’re left behind. I’m going to share with you how Sanmina captured right customers and right products, and how we do that offering right technology.

So starting with the markets, we focus on communication networks. When we started the company, that’s kind of how we grew it. One time in late 2000, we were about 90% in communication side of the business. That’s still a major part of our business today, is almost half of that.

Enterprise computing and storage, multi-media, Defense and Aerospace, industrial, semi-conductor, medical systems, and clean technology. On the right side, you can see on the slide some of some of the pictures of what we do. That’s where we play. It’s in a higher technology product. We don’t blame consumer, we exited our consumer. Even in the last couple of years, as we looked at our revenue, we did exit certain products that we didn’t believe a good product for us long-term.


So if you look at just the percentage wise, communication networks is our key market, continue to going to be a key market, and David Dutkowski will talk about it today. And also we feel that there’s a lot of good opportunities for us because how well we are positioned.

Another major group is the defense, industrial and medical. Mike Underwood will talk again, more about the defense today, and aerospace industry, but that’s the area. Those are the two key markets that I believe have a lot of potential for us. Enterprise computing and storage, a substantial amount of our business in 2011. We expect that business to continue to move in the right direction. We’ve got some new products and ODM that we are offering, we’re going to continue to drive that.

Multi-media, from all of these technologies, I would say is probably the lowest technology that we build, but even in that group, we’re building some really complicated stuff. In all this, mainly used to be set top box business. While we still build some set top box business for a couple of customers, but really there’s a lot of other unique products, especially in high-end cameras, in automotive, in that group and so on that we participate in.

Again, let me talk to you now a little bit more about our customers. As I said earlier, and as a old sales guy, you hate to say you don’t need new customers, but we do have a strong and diversified customer base. These are the customers that we have a long relationship, and most important, in the last couple of years, our relationship got stronger with them and we are involved with them in their new technologies and new products. And we’re working very close with them on development project for the future.

Now let’s talk about our operational structure, how we’re structured. You’re going to hear later on from Marco and other guys as they talk about their products, how we’re globally structured. But let me give you some highlights, how do we control and what we focus on. As you build a company, when we started Silicon Valley, we were a small company and entrepreneurial, but as you grow and become globally, you realize you’ve got to have a consistency. How do you control that. In our early stage, about 15 years ago we decided to invest in just one IT system. As we acquired the company, as we grew the company in the last 15 years, we basically positioned to a pme global IT system.

I can tell you, today we’re only true EMS company that has everything on one global IT system. These are unified, they communicate to each other, all the way from the way we call on our customers, when we get a order, how do we enter it, how we track it, all our HR systems are connected to understand what’s going on globally, supply chain management, which is the biggest challenge for manufacturing companies, how do you manage your inventory, how do you manage your supplies. And of course, your financial controls. That is all connected, and we have a global consistency that allows us to be more efficient, and it also allows us to build.

So if you look at our company today, our structure – we have a structure of $50 billion company. So but at the same time, it gives us enough flexibility to be entrepreneur top company that we want to be.

Let me now talk to you about some of the management changes that we made, especially in the last couple of years. As we’ve been tuning up and positioning, and changing to our new strategy, we looked at how we were set up. And what we came to conclusion is that running everything out of one bucket in this global world, maybe wasn’t the best way. We come from a management where we allow people to make a decision on goal. And we became what I call too democratic, everything was run by federal government type of mentality. What we made from that, what I call corporate centric, with all the decision have to be made at corporate to more entrepreneurial customer centric. And in order – the reason we did it, the biggest drive there was, is that we have to refocus on differentiating Sanmina from the big guys, because you know, we sometimes compete at the $40 billion company and then we compete with the 500 or $1 billion company. And in order to do that, you really have to refocus where you’re good at and differentiate that through technology and the businesses.


And I believe, you know, we’re moving in the right direction there. As the leader of this company, there’s still some tune up there, but I think things are really moving in the right direction. And the way I measure that, when I talk to our customers, that’s where you get it, how flexible we are and how fast do we get the job done.

As we make the move, you kind of look at what drives the company, what drives that relationship with our customer? It’s the quality culture. Quality, or Sanmina quality culture is more than just building a perfect product every day. It’s the culture of continuous improvement. There’s a lot of talk about Six Sigma. I mean, we live it, it’s not just talking about it, you have to live it from one plant to another plant. And it’s more the customer has to see the benefits of that. If the customer doesn’t see the benefits, you can talk all you want and spend all this money for Six Sigma doesn’t work.

Well we implement it. We have a writer and a real world. Marco will talk a little more about that. But at the same time, also quality culture of technology, what customers are needing. Even – I started with a thinkable business and I think Steve Fox is around here, and I joked around because he’s been around longer than I’ve been. And we looked at all the circuit boards. It was a easy to describe them, but today circuit board are just not a boards anymore. You build it. It requires a lot of technology, you have to invest a lot.

So the world is changing, so that we have to evolve constantly. And then to do that, constantly in this business, to win the business you have to exceed the customers’ expectations. And it’s a lot harder doing that than just saying it. So you have to get that culture in our people. And I’m really happy what we’re able to accomplish there.

Also, being a global company, we started in Silicon Valley, today we have 45,000 people around the world. We deal with the different cultures. You know, people are people no matter where they are. I’m very proud what we have established, both from our social responsibility as a global company. We are a American company but we are also in Mexico, you’re a Mexican company. When you’re in China, you’re a Chinese company, when you’re in India, you’re a Indian company. And we bring that, I would say USA culture for respect and also respect for the environment and the responsibility that we bring as a large global organization.

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