Flextronics International Management Presents At 2012 Bank Of America Merrill Lynch Technology Conference (Transcript)

Flextronics International, Ltd. (FLEX)

2012 Bank of America Merrill Lynch Technology Conference

May 9, 2012 5:45 PM ET

Executives

Wamsi Mohan – Bank of America Merrill Lynch

Mike McNamara – CEO

Paul Read – CFO

Presentation

Wamsi Mohan

Good afternoon everyone. Thank you for joining us here today at the Bank of America Merrill Lynch Technology Conference. For those of you who’ve not met, I’m Wamsi Mohan. I am the Technology Supply Chain Analyst here at Bank of America Merrill Lynch. We’re delighted to have Flextronics here with us today. It’s a massive company which has touch points into every geographic region, every products that you can think of, did about just of shy of $30 billion in sales last year.

It is going through significant changes within its portfolio. We actually upgraded FLEX right after their earnings, where we felt like the fundamentals were really changing for the company. And we’re delighted to welcome Flextronics here. We have the CEO, Mike McNamara and CFO, Paul Read both of us joining us. So thank you very much for joining us here today. The format is going to be a fireside chat. I’ll start off with some questions and then we’ll also open it up to the audience. So with that, thank you very much for joining us.

Mike McNamara

Good. Thanks for having us today. Yes, I appreciate it.

Paul Read

Thank you.

Wamsi Mohan

So, Mike, maybe just sort of very high level to start off, I mean you’ve seen many, many cycles in the EMS industry, where do you think we are in sort of a mini cycle? It feels as though looking at trends, things are not falling off a cliff but at the same time not a whole lot of revenue growth that we can see in the very near-term as the scoreboard is sort of weaker guidance here. So it feels as though we’re close to a bottom hopefully we pickup in terms of revenue growth. Is this sort of a mini cycle where we are sort of posting near the trough and hoping that things get better?

Mike McNamara

Yes, I don’t know, if I would call it a mini trough. I think the industry in general, the electronics industry in general what I think about it being everything bud apple, has just being kind of coasting along. I don’t know that it’s being go through a trough really, I just think it’s been a very slow, somewhat steady environment for some period of time.

So we haven’t really seen going down, we haven’t really seen the trough. We just have seen kind of slow and not to exciting. And maybe that’s just a reflection of the general marketplace. The U.S. has been little bit stronger but Europe is a little bit weaker, China got a little bit slower, maybe it’s a picking up a little bit, Brazil is certainly slower than it was a while, last year and the year before. But maybe if you take in all of the bundle it’s just a slow growth kind of business and that’s what it feels like to me.

Wamsi Mohan

When you work through the course of the rest of the year, I know you alluded to in your call that next quarter obviously there are some challenges with respect to HVS but from then you expect to see about normal sequential growth. So what gives you the confidence, how much of that is dependent on macro sort of coming back a recovery or versus the line of sight that you have into your wins into the pipeline of projects that you’ve build over the last year or so?

Mike McNamara

Yes, we actually thought that seasonal – we would actually grow a little bit better than normal seasonal growth September, December towards the backend maybe even into the March quarter. It’s a combination of couple of things. One is it’s a trough quarter for us in the June quarter in terms of revenue and that’s not necessarily because the markets a trough quarter, it’s more because we’re doing that conversion in terms of our trying to get to a balanced portfolio of about 30% high velocity and about 70% non-high velocity, which we think is the optimal portfolio.

So I think as we go forward, we see some seasonal pickups, normal seasonality. We see without anticipating a significant amount of recovery in those numbers. So we’re actually expecting more slow kind of continued steady, kind of sturdy kind of growth. At the same time we have some of new wins. So without doubt, I think the electronics marketplace continues to – or electronics manufacturing services business continues to have more and more outsourcing on a continual basis.

So we’re still seeing some product categories where the amount of outsourcing keeps increasing even though the underlying core business may not be very robust. So it’s a combination of all of those things.

Wamsi Mohan

Well when you look over the course of many years, I mean it seems like some of these non-traditional areas would be a big driver for growth, and they really if you look at computing, if you look at service storage, networking all these have been highly outsourced at this point but when you look industrial, medical, defense, I mean these have been opportunities, there continue to be large opportunities. How do you see your mix of that business evolving over the next few years? It seems as though maybe things are coming to a pain point in these industries where and you have budget cuts in defense which force people to potentially outsource more medical going through a significant revamp. Just industry regulations seems to be driving opportunities more and more towards your favor and in favor of outsourcing. So should we be expecting the mix to actually materially change over the next, call it three, four, five year timeframe and what does mean for the sustainability and volatility of margins?

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