Good summary, Rich. My comments follow:
Caution: My notes are my interpretation and attempt to capture the information discussed in the call, and may not be completely accurate. They do not necessarily reflect the actual wording used by Plexus management.
The largest customers in the Q were GE 12%, IBM 12% and MOT and Unisys both in the range of 7-9% of revenues.
The big hit to the top line, was of course, the decision by Motorola to pull a major program back inhouse (as preannounced). But they still have Motorola business, particularly with the Cellular Infrastructure Group within Motorola, and are currently quoting new business with the Cellular Systems Group and the Radio Labs group at Motorola. The work they have with Motorola's CIG seems like good business.
The impact of the strong USD was felt because they have two Japanese customers and one German customer who were affected by the dollar exchange rate. One Japanese customer put their medical equipment business orders on hold, and the German customer took their business back inhouse (presumably in Germany).
Ascend's new ATM switch is ramping slower than expected. Ascend pushed this product out 1 to 1.5 quarters. This product could have contributed $3-5M per Q, and is expected to eventually ramp to more than this. Unisys has one of their high end servers in the prototype stage, and next will go to production. One of the analysts seemed very bullish on the outlook for these servers. (These were the most concrete evidence discussed that there will be revenue growth going forward.)
GE Medical redesigned some of their equipment (ultrasound??), and the price dropped from $110k per unit to about $70k, the assembly costs (revenues to Plexus) went down, and this offset increased volumes. Together with business from GE Medical and Transportation, GE business will stay about 12% of revenues. IBM will conitnue to decline as a percent of revenues.
They improved inventory turns to 7.2 turns from 6.7 turns and reduced the DSO of receivables. The quarter's ROE was 21% versus 23% last year. The new program with Ascend and another customer(missed the name) should help get the GM back above 12% by the end of the year.
They don't expect any additional impact from Asia situation, but they are putting pressure on their suppliers to get a positive impact by repricing component supply. For example, they see opportunities to get ASICs at lower prices.
In summary, a cautious but upbeat forward looking view. Interest in 'Plexus's services is still quite strong. Periodically we go through a period like this.' They don't want to be overly cautious such that they 'err on the low side with guidance'. They are emphasizing sales efforts through their new offices in Milpitas,CA and Raleigh,NC.
They are buying shares back (130k so far out of an approved 2M program) and there will be filings soon showing buying by insiders.
My own view is that it will take several quarters before they are completely back on track. A lot of that is in the current price of the stock. Also, I don't see as positive a growth looking forward as others for this company. However, they have some very good customers.
Paul |
