Celestica Inc. (CLS) Q4 2011 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen. My name is Martina and I'll be your conference operator today. At this time, I would like to welcome everyone to the Celestica's Fourth Quarter Results Conference Call. [Operator Instructions] I would now like to turn the call over to Manny Panesar, Director of Investor Relations. You may begin your conference.

Thank you, Martina. Good afternoon, everyone, and thank you for joining us on Celestica's Fourth Quarter 2011 Earnings Conference Call. On the call today are Craig Muhlhauser, President and Chief Executive Officer; and Paul Nicoletti, Executive Vice President and Chief Financial Officer. This conference call will last approximately 45 minutes. Craig and Paul will provide some brief comments on the quarter and full year and then we will open up the call for Q&A. We can also be reached for follow-up questions after this call. Copies of the supporting slides accompanying this webcast can be viewed at celestica.com. [Operator Instructions] Before we begin, I would like to remind everyone that during this call, we will make forward-looking statements related to our future growth, trends in our industry, our financial and operational results and performance and financial targets that are based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially. We refer you to our cautionary statements regarding forward-looking information in the company's various public filings, including the Safe Harbor statement in today's press release. We refer you to the assumptions, risk factors and uncertainties discussed in the company's various public filings, which contain and identify factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. These filings include our Form 20-F and subsequent reports on Form 6-K filed with the Securities and Exchange Commission, which can be accessed at sedar.com and sec.gov. Please note that starting in 2011, our financial results are reported under International Financial Reporting Standards or IFRS. Comparative results reflect this change. During this call, we will refer to certain non-IFRS financial measures, which include adjusted gross margin, adjusted SG&A, adjusted operating margin or EBIAT, adjusted EPS, ROIC and free cash flow. These non-IFRS measures do not have any standard meaning under IFRS, and are not necessarily comparable with similar non-GAAP financial measures presented by other companies, including our major North American competitors. We refer you to our press release, which is available at celestica.com for more information about these non-IFRS measures, including a reconciliation of the non-IFRS measures to the corresponding IFRS measures, as appropriate. I will now turn the call over to Craig Muhlhauser.

Thank you, Manny, and good afternoon, everyone. Celestica delivered a solid fourth quarter performance with strong margin, cash flow and return on invested capital despite the volatility in customer demand. For the fourth quarter, revenue of $1.75 billion came in slightly lower than the midpoint of our guidance range as we continue to experience end market softness. For the fourth quarter, IFRS net earnings of $69 million increased 80% year-over-year. Non-IFRS operating margin of 3.8% was up 30 basis points from the same period 1 year earlier. We continue to generate a strong ROIC of 27.5% with $89 million of free cash flow for the quarter. In the fourth quarter, we continued to make progress with respect to the targeted mix of our portfolio. Our diversified end market reached 18% of total revenue, up from 16% in the third quarter and up from 11% at the end of the fourth quarter of 2010. Turning to the full year. I am pleased to report that Celestica completed fiscal year 2011 with strong revenue and earnings growth. We also achieved our company goals for operating margin, ROIC and free cash flow and we made excellent progress in our diversification strategy. For fiscal 2011, we achieved year-over-year improvements for our key financial metrics. Revenue at $7.2 billion grew 11%; IFRS net earnings of $195 million increased 93% year-over-year; adjusted earnings per share of $1.11 grew 29%; non-IFRS operating margin of 3.6% of revenue was up 20 basis points from 2010; ROIC for the full year came in a strong at 27.5% and we generated $144 million of free cash flow for the year. For the full year, we made significant gains in our diversified end market as revenue increased year-over-year by approximately 40%, reaching the $1 billion level for 2011. Our financial position…

Thank you, Craig, and good afternoon, everyone. Craig provided some highlights on the quarter and full year. I will add some specific commentary on our end markets, profitability, returns, balance sheet and first quarter guidance. For the fourth quarter, while revenue declined year-over-year across a number of our end markets, Consumer revenue remained relatively flat and we experienced strong growth within our diversified end market. On a year-over-year basis, the diversified end market grew 45% in the quarter. Excluding revenue from acquisitions in the year, revenue grew 27% with double-digit growth across all areas mainly Aerospace and Defense, Healthcare, Industrial and Green Tech. The diversified end market now represents 18% of our total revenue, up from 11% in the first quarter -- pardon me, in the fourth quarter of 2011. Our Consumer end market, which represents 26% of revenue, declined 2% sequentially and was relatively flat year-over-year. Enterprise Communications was 25% of the total, declining 10% sequentially primarily due to demand softness across a number of customers and in part, due to a specific buildout at one customer in the third quarter. Enterprise Communications revenue was down 3% year-over-year. The Server end market was 13% of total revenue in the quarter. Server revenue was sequentially lower by 4% and 26% lower on a year-over-year basis as a result of weak end market demand and year-over-year demand declines for one of our largest customers in this end market. Storage was 10% of total revenue, down 11% sequentially, primarily due to an inventory correction with one customer and some end market weakness across our portfolio, including an impact from the Thailand floods. On a year-over-year basis, Storage was down 23% in part due to demand softness across a number of customers and our decision to discontinue a lower-margin program with one customer.…

[Operator Instructions] Your first question comes from the line of Amit Daryanani from RBC Capital Markets.

Just a question maybe on OpEx going forward. I think you said $56 million to $58 million for the quarter. Given continued investment in the diversified segment, how do you think we should think of modeling that, of that trending over the next, I guess, through 2012?

Yes, Amit, it's Paul. I think you should think about OpEx between $55 million and $60 million for the quarter for the balance of -- for 2012.

And then on the Consumer side, I think you mentioned -- down 15% in Q1 due to transitions with a customer. Is that a competitive loss are you just walking on it for some business because it's not profitable and how much of that magnitude?

So, Amit, certainly, as you know, we have a heavy concentration in Consumer, so -- where we support them across multiple programs as well as multiple geographies. So what we're seeing is 2 things. The mix of the programs that we have currently, certainly demand is not as robust as we would have liked and certainly, I think that's been well chronicled as of the last few weeks in the press. That being said, we are in the midst of supporting them for one their significant product launches, which we're in the midst of preparing for during the first quarter, and we expect to shift revenues during second quarter. So we're seeing again a bit of a transition here, I think a little bit of weakness on some of the legacy programs, which we expect to be offset by strength in future programs.

That's helpful. Just finally for me on the buyback, have you built any into the model for Q1 at all in the EPS assumption? And did you guys discuss to a dividend while you're applying for a 10% buyback? And I'm curious, why go with a buyback versus a dividend?

Sure. So, Amit, forgive me, I should have -- no, I don't think I answered to your complete question earlier. So with regards to share, we are not losing any programs with that customer and certainly are maintaining our share with that customer. With regards to the stock buyback, we've talked about dividends before, I think our view here is that certainly our objective is to put the capital to work to grow the business. So that continues to be a priority for us. You saw us complete an acquisition in 2011, suffice to say that we continue to look for ways to put that capital to work to grow the business and that remains our priority. That said, given the strong cash flow generation, we've launched the share repurchase and we're picking that method versus the dividend in that, that is obviously one that we can meter, accelerate or decelerate based on the business opportunities that we're seeing.

Your next question comes from the line of Wamsi Mohan from Bank of America Merrill Lynch.

Paul, you took on incremental restructuring charges relative to what you talked going into the quarter. Can you be more specific when in the quarter? It seemed like you needed to do the incremental restructuring. And was this driven by weakness from any one particular end market or more broad-based? And I have one for Craig after that.

Sure, Wamsi. So I think when we enter the quarter, we would expected restructuring closer to $4 million, we end up booking $8 million in total. Nothing in particular from an end market perspective, just when we looked across the network, a couple of additional actions that we decided to take. As you saw from our total charges, we had some offsets and the positive offsetting the impact, but again when we looked across the network, we just decided to take a few incremental actions given the overall end market weakness not relating to any particular end market.

Okay. And, Craig, this is sort of a little bit of a follow-on to last question. But to your largest customer, there's some sense that some of your competitors are actively managing growth down where some of it could be just walking away from some of the programs that they feel are less attractive or some naturally lower growth rates. But is your expectation that this business will grow faster for you and you will ultimately take share? Or will you also be managing this business to the return characteristics that you would -- typically kept to and keep away from potentially lower margin incremental business?

Well, Wamsi, we will manage the business consistent with the way we've managed it in the past. We're executing at an extreme high level for this customer, we're targeting key programs that represent what we think to be the greatest opportunity for both margin and for revenue realization and we intend to continue to support and at the same time, at the same level of share that we've had over the past 3 years.

Wamsi, it's Paul. It's probably worth adding that -- and we've talked about this before that we also look at this and manage our own concentration. So it's certainly -- we're not uncomfortable with where we are with the 20% concentration but certainly mindful of the risks and rewards of the concentration. So that's something that we're looking to also manage at the same time.

Your next question comes from the line of Matt Sheerin from Stifel, Nicolaus.

So, Craig, you talked about a pipeline being fairly robust, looking towards the second half of the year. You've talked about pipeline for the last few quarters. Of course some of that's been offset by weakness in end demand. But could you be specific about where you see that coming and when do you see those programs ramping?

Matt, thanks. We see strength across all of our end markets in particular, as Paul mentioned and we both mentioned, diversified space as a relative growth rates over the course of the year, based on our bookings performance, based on full year realization and the improvements we're getting from the Brooks Automation acquisition. So we'd see the broad-based, most significant impact in the diversified space as we look at the full year and then obviously we are defending the communications and enterprise space, so we'd anticipate lower growth rates there on an overall basis as we look at the full year. As we said, we expect revenue and margin improvements as the year progress. So pipeline of -- the book and bill for most of the year is in the bag and basically although we expect some in the first half, the majority of the execution is in the bag. The important thing is revenue realization this year as those programs begin to ramp.

Okay. And it looks like you're starting in the hole a bit revenue down year-over-year on the guidance. As programs ramp, do you expect revenues to grow for the year? Year-over-year?

Yes, on an overall basis, we expect revenue growth over the year.

Your next question comes from the line of Sherri Scribner from Deutsche Bank.

I wanted to get a little more detail on the Server and Storage markets. It sounds from some of your competitors and some of the customers that demand softened at the end of the year. I wanted to get a sense of linearity of the quarter and did it seem like orders didn't get booked at the end of the quarter?

It's Paul. I think perhaps a little bit of a different answer on each of the segments. So on Server, as you know, we certainly have a reliance on one customer in that segment. So while we serve many, one customer makes up a different portion of that. And I think overall, that customer has been -- not fairing as well from a market share point of view. And so while we have haven't lost any share in that we have the entire program, the demand on that has just been weaker. I wouldn't say it was incrementally weaker, overall, than we expected, we counted that one as going into the quarter as unfolded as we thought. On the Storage side, I will say that we saw more reductions as the quarter unfolded, so towards the latter half of the quarter. Again, I wouldn't particularly -- I wouldn't point out any particular customer there but we did see some softness as the quarter unfold. And I think we mentioned this in our comments, I think that particularly, when the floods occurred, we're not exactly -- I think some people may have been taking some positions on inventory and that being subsided, release some of that inventory, which obviously amplifies what they need from us.

Okay. So it sounds like potentially there's some impact from Thailand to the Storage business and it was a bit softer at the end of the quarter.

Yes.

Okay. That's helpful. And then thinking about your diversified piece of business, you do you expect growth this quarter sequentially. That's been a strength for you, are you continuing to see good opportunities in that segment of the business? I know there's a lot of competition with all of your peers really trying to go after that kind of diversified manufacturing business. Are you seeing opportunities? Do you have a good pipeline and how do you feel you're competitively positioned?

It's Craig. Yes, we continue to see good opportunities especially with the advent of our complex mechanical capability with the acquisition of Brooks Automation. We see strength in the first half frankly, in the semiconductor equipment space, we see companies looking to consolidate their supply base and with that capability, we've been able to leverage that against -- across some of the other verticals. We mentioned we're investing in our centers of excellence in Aerospace and Defense and we're seeing opportunities there. And then on the alternative energy front, we continue to see selective opportunities as we continue to pursue that market. So by and large, it's still a very strong pipeline of opportunities. Primarily related to our execution and then the benefits of the capabilities that we acquired late last year through Brooks and what's happening in the semiconductor equipment space, it's pretty exciting.

Your next question comes from the line of Lou Miscioscia from Collins Stewart.

When I look at first quarter guidance, it looks like it's better than normal seasonality. Was it mainly because of the diversified section being up quarter to quarter? Or was there anything else that's going on that's helping first quarter from a top line standpoint?

It's Paul. So putting trends on Consumer off to the side for a moment, which I think is more of a customer-specific situation, I'd say that it's more about fourth quarter not being as strong as we otherwise would have seen historically. So on the back of that, you're not seeing the same decline in the first quarter. I think that's the bulk of it. So as I said earlier, when you look at what's going on underneath the covers, while we expect the Consumer to decline to 15%, diversified to grow, the rest of the markets again relatively flat. Some slightly down, which, as you know, is not typical but I think it has more to do with the weakness in fourth quarter.

Okay. Great. And then maybe relate that back to, I guess, the EPS guidance suggestion was a bit below what the expectation we had. We haven't modeled the whole thing out but what was causing that to have, I guess, a wider range on the low side?

Well, I mean, certainly the revenues were lower than what we would have originally expected, Lou. So clearly, as revenue goes down, there is an impact on just the fixed cost absorption of the company. As you know, we've done a good job of managing costs and certainly, have endeavored to put in the most variable cost structure that we can. That said, the revenue goes down, it becomes harder and harder to do. And that, along with, I think, our view here is that we want to continue to invest. So certainly the easy thing to do would be to cut back on some of the investments relating to our design efforts, relating to further capabilities in our services and diversified markets. But we're choosing not to do that. As Craig commented in his prepared comments, we really think that the strategy we're on is the right one. Obviously, we're disappointed that the short-term demand is not how we would want it to be but we believe where we're going and we're not going to compromise the long term at this point.

That's helpful. And then the last one, quickly on the buyback, how quickly can you start it and can you give us any idea as to whether you look to execute it very quickly, let's say all in the first quarter or just throughout the year?

Lou, I think the typical approval period of the TSX would be no more than 10 days, call it, most likely be a little bit faster than that. As far as -- there are limits as to the amounts that can be purchased everyday based on daily volumes, so there are limits to what we could do. Last time around, you may recall that we hit the gas pretty hard and completed it pretty quickly. I expected this one to -- I think we'll taper this out somewhat a bit longer but we'll see how the market unfolds and make decisions again based on what opportunities we're seeing in the marketplace.

Your next question comes from the line of Shawn Harrison from Longbow Research.

Just getting back to the commentary on the stronger back half of the program, when it's booked, is there any way to size the potential annual opportunity of those winds just to get a sense of how revenues could potentially ramp into the back half of the year?

That's not something that we have typically done, just too much uncertainty. So we're not going to start with that. I'll try and dimension 2012 for you. As Craig mentioned earlier, we do expect 2012 to grow overall, certainly to be modest growth if we had to look at it here today, probably in the 3% to 5% range is kind of how we would see it. Again, it's underpinned by the assumption of a bit more economic stability and recovery in the second half. But based on the forecast we have today, that's probably a way to dimension it. I'll leave it to you based on again starting at the 16, 50 midpoint for Q1, to make your assumptions from there. We're not going to guide by quarter at this point in time, but again based in the forecast today, that's what we'd see.

Very helpful. I guess with that growth that you expect in the back half of the year, maybe some incremental capital required to support that growth both on equipment and just inventory, would you expect to be free cash flow positive for the year or maybe just closer to neutral?

No, we would expect to be free cash flow positive. We will be, as I commented in my remarks, we will be increment in spending some CapEx. CapEx will go up in Q1 as we are expanding capacity to support some of our new customers, particularly in the Industrial and semiconductor space. Beyond that, I would expect revenue for -- CapEx for Celestica is running in the 1% to 1.5% range historically. In over the last few years, have been at the lower end of that, I don't expect that trend to change for the year. And given the modest top line growth, which, as you know, will limit the amount of working capital investment. I think that the company will be able to achieve the goals we've laid. We've laid out there vis-à-vis the cash flow.

Your next question comes from the line of Jim Suva from Citi.

I have a question, first of all for Paul and then my second question is probably better suited -- I'm sorry, for Craig. The second question's probably better suited for Paul. Craig, when we think about -- you had mentioned you're going to be investing in Q1 to spur growth in 2011 -- I'm sorry, in 2012. When you look back at 2011, your growth was kind of low double-digits and it was helped by the Brooks acquisition. Can you just help us quantify what type of growth you're looking for quantitatively for 2012? Is it kind of in a 6% to 8% range, what a lot of people are kind of viewing as GDP plus more for EMS? Or is that too aggressive? Or you mentioned you're planning for, you might as well let us know what the plan is.

So I think, Jim to -- we do, as we mentioned, we expect revenue and margin improvement as the year progresses. Two factors: Improving economic environment and new program ramps and the outlook based on the current planned forecast that we have for the full year as Paul mentioned, is in the area of 3% to 5% overall. How you split that by quarter, we'll leave that to you, but that's in terms of our current plan, our current outlook and the current assumptions we're making based on those 2 factors, new program ramps and then market recovery. 3% to 5% is in the range of what you could expect this year.

Great. And then a clarification that probably better for Paul, whatever. When you talk about your EPS that was $0.33 cents for the adjusted EPS and you mentioned some things that were going on with the tax items, you had mentioned 2 specific things. Were they both excluded in that adjusted EPS or was just one of them excluded? I'm just trying to figure out exactly apples to apples?

Yes. One of them was excluded. So again, one of them related to a restructured facility/country. So that's not impacting adjusted earnings. The one that is in relation to an existing facility is part of adjusted earnings so that the $0.05 benefit in that $0.33 relating to again a positive settlement of a historical tax audit. So if you put that aside, EPS for the quarter would have been $0.28.

Your next question comes from the line of Brian Alexander of Raymond James.

Craig, I think, earlier, you said something about defending your position in Communications and Enterprise or maybe I didn't hear you correctly in response to Matt's question about the pipeline and sales momentum. So just curious what that implies about the pricing environment, your pricing strategy or what you had meant by that comment if I heard it right?

What I meant by that comment, it just goes back to the investments that Paul mentioned we're making, which is part of our operating plan which is we have adopted a joint design and manufacture strategy, where we've developed solution accelerators based on industry standards. We're pursuing a strategy to invest in the design of solution accelerators, which offer our customers the ability to take our platforms, customize those platforms that are specific requirements and call that joint design and manufacturing, it's not ODM. We have alliances with major technology enablers. It gives us the ability to offer the Celestica solution platform if you will, it's customized. In doing that, we're pursuing higher-margin opportunities because we're taking the risk of investment and as a result of providing some of the design value-added, we get a larger content from our customers in the engagements and then frankly, we end up working with them to tie that to the ongoing production contract. So we're actually working at defending our base business through productivity and performance and we're looking at enhancing the value-added and defending that core and frankly, transforming that core in Communications and Enterprise, primarily in the infrastructure space becoming the preeminent company in this new and emerging JDM segment, which we think we're pioneering. So that's what I meant by that statement.

So in pioneering, I should assume that that's not something your competitors are doing?

Well, I think everybody -- it's emerging and certainly, we feel we got a bit of a lead here, but certainly, our competitors are obviously involved in the competition for the segment.

And then in terms of the growth, the 3% to 5%, should we assume all of that will come from your diversified business or do you think you'll start to see growth in the Communication and Enterprise computing spaces? It sounds like you've got some programs in the pipeline, but just to clarify, do you think you'll see growth in the segments at some point this year?

Yes, I do.

Your next question comes from the line of Gus Papageorgiou from Scotia Bank -- Scotia Capital.

Just a couple of questions. Just one, I just want to clarify, on the share buyback, you plan to cancel any shares you buy, you're not going to use any of them for a stock-based compensation, I think you said that but I just want to clarify that. And then just on diversified Industrials, Craig, I think at a conference, you suggested that might grow as much as 50% this year. Is that accurate and is that the kind of growth we should be expecting from that segment?

Gus, it's Paul. Just -- I'll deal with the first part of that question. The answer is yes. So whatever shares we buy, we will cancel as part of that program.

And, Gus, regarding the comment on the diversified space, the current outlook is that the diversified space would grow on the order of 40% to 50%.

Your next question comes from the line of Todd Copeland from CIBC.

A couple of points of clarifications and then a question. So, Paul, on the $0.28, that would be on tax, I guess, right?

No. There's normal course tax in there, Todd. So all we tried to do is essentially, the $10 million onetime pick up from a tax audit, there is other tax expense that's in there. So at the end of the day, $28 million is the tax expense -- $0.28, pardon me, there is tax expense in that number, so that $0.28 reflects tax expense. So the pretax number would have been higher. But then in addition to that, there was this $0.05 pickup.

Okay. Got it. Okay, I didn't want to double count there. And then just one other point of clarification. I think you said $120 million deposit is in your cash?

Yes.

So would that effectively disappear in the March quarter?

So, Todd, just to step back, so that was -- we've had a short-term arrangement with that customer for, I guess, over 1 year and I think it’s been about 5 quarters. And just the restructure of those arrangements is that they timeout. We have been successful, I guess, in the past 5 quarters in renewing those agreements. So there's obviously always some risk to that. And so I wanted to highlight that to you. Our plan going forward is that the number will be smaller but it will be smaller because the inventory will also be smaller. So clearly, it's not our objective to run, neither company's objective to run with that much excess inventory offset by this cash deposit. So our expectation is that -- we go through time is that the number will go down and that the inventory will go down with it.

Okay. So should the net effect be -- which rolled in on cash?

That's the goal, Todd. I mean, again, we've been renewing this thing for 5 quarters so there's nothing for us to believe that it would not get renewed. But again, I wanted to highlight to you that is a short-term arrangement.

Question on the business if I could. So beyond the new program at RIM and the diversified new programs, what other new areas do you have on your pocket that you care to highlight for the second half, what segments of the business would you see those 2 new programs coming in?

Primarily the Enterprise Communications space. We've had a very good year in establishing ourselves as a material supplier in that space. We've won a number of new programs, so that's the other one I'd like to highlight.

And those are scheduled for the second half?

Todd, it's -- forgive me, it's Paul, for jumping in here. We expect to see revenue growth in that segment in each quarter. So clearly see more of the girth coming in the back half, but we expect to see increments each quarter.

The next question comes from the line of Naser Iqbal from Salman Partners.

Just -- I guess my first question would be that, like how much quantitatively -- was there an impact of Thailand in Q4 and how much do you think that's going to affect Q1?

It's Paul. I think the impact would have been in the $10 million zone as far as an impact is concerned. Looking forward into Q1, difficult to predict, I think the worst is behind it, behind us, but I'd say no more than that same number.

Okay. And just as I'm thinking about the growth for the year, I think you talked about 3% to 5%. Is that -- would that be 3% to 5% revenue growth for the whole company for the year? I mean -- and so that it's a more modest expectation than the 6% to 8%, is that just the way we should be understanding that?

Yes. And, Naser, I mean, we laid out a goal, as you know, a couple of years ago to over a 3-year period, grow the company up 6% to 8% compounded. So we're in the last year of that. So from what we see right now, as Craig mentioned earlier, 3% to 5%, I think if you actually go back and do that math, you'd be within that 6% to 8% goal, overall if we achieve that 3% to 5%. But right now, based on the forecast we see and again with some assumptions on recovery in the back half, we see that 3% to 5%.

Okay. Okay. And just a point of clarification, Paul, would the OpEx, the $56 million to $68 million in the quarter, that's including stock comps. So is it that if we exclude the, whatever, $5 million, $4 million or $5 million in stock comp, the X, the excluding figure is lower than that like you did in this fourth quarter?

Naser, that number does not include stock comp. So the equivalent would be, this quarter, I think it's $52.6 million and I mentioned in my comments that we did have some one timers relating to release of some variable comp and some bad debt recoveries so that was -- that helped us in the quarter. And the fourth quarter was, obviously, will not repeat themselves. So as we look into first quarter, we see between $56 million and $58 million right now.

Your final question comes from the line of Robert Young from Canaccord Genuity.

With the 3% to 5% range on the top line, I was wondering if you could share where you expect the operating margin profile to sit through the year. Still, we've got 3.5% to 4% or should we look at something lower?

It's Paul. Thanks for the question. As you know, we laid out our target between 3.5% and 4% based on what we see here today. We feel very confident with that 3.5% to 4%. Clearly, as I mentioned at the midpoint of our guidance, it's slightly below the low end of that range, a similar phenomena to what we saw last year, suffice to say, we're working aggressively to get it, to keep it at that the 3.5% for right now, on a balanced basis and so that's what we see, but on a full year basis, just given the benefits of the additional volume, we are pretty comfortable with that 3.5% to 4%.

Okay. Great. And then second question, you said that you're going to collapse the Telecom into Enterprise Communications. I wonder, does that imply that you don't expect that segment to get above 10% again? And if so, what implication does that have on margins? I understand that's had to be one of the margin segments below diversified.

Yes. So, Rob, while we continue to pursue opportunities with Telecom customers. Our portfolio has been with those who have not been fairing as well in the marketplace at least to date. As you know, a lot of the growth in that area has come from the Asian players. So it's really, that's kind of why we're looking -- the numbers has been reducing. As far as the impact to margins, I wouldn't read into it in any particular way. It has been, certainly if you look at the end market distribution, every piece of the business has a different margin profile but I would not spike [ph] out Telecom a dramatically different from Enterprise Com as an example, for having a different margin profile. So we don't see any impact from that.

Thank you. So I'd just like to extend my thanks to all of you for joining us this afternoon and look forward to our continuing dialogue through 2012. Thank you very much.

Thank you.

This concludes today's conference call. You may now disconnect.