Ladies and gentlemen thank you for standing by and welcome to Tyco Electronics First Quarter Earnings Call. At this time, all phone participants are in a listen-only mode. Later, there will be an opportunity for your questions. Instructions will be given at that time. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference over to Vice President of Investor Relations, John Roselli. Please go ahead, sir.

Thanks, Gail. Good morning and thank you for joining our conference call to discuss Tyco Electronics first quarter results for fiscal year 2009, and our outlook for the second quarter. With me today is our Chief Executive Officer, Tom Lynch, and our Chief Financial Officer, Terrence Curtin. During the course of this call, we will be providing certain forward-looking information. We ask you to look at today's press release and read through the cautionary statement that we have included there. In addition, we will use certain non-GAAP measures in our discussion this morning, and we ask you to read through the sections of our press release that address the use of these items. The press release and all related tables can be found on the Investor Relations portion of our website, at tycoelectronics.com. Now let me turn the call over to Tom for some opening comments.

Thanks, John. Good morning, everyone. I am going to give you an overview of our performance, and some headlines of what's going on in the business. Then I will turn it over to Terrence Curtin, who will walk you through our Q1 results in detail, and provide you a status of the cost actions we are taking in response to current conditions. It is a bit of an understatement, but this is clearly a tough business environment and, in many ways, unprecedented. It does not feel good, frankly, but despite the circumstances I will talk a little bit more about this later on. I am glad we are in the kind of company that we are in. It that has financial strength; it is a leader. Besides driving cash and getting the cost out, the other key area we are focusing on is making sure that we really do come out with some competitive advantage after all of this. I will touch on some of the things we are doing in this regard further in the call. Let me talk about the first quarter. We expected a tough first quarter, when we were on the call with you three months ago. It turned out to be even tougher than we thought, as a result of continuing and weakening demand through the quarter. We saw, and we continue to see, weakness across virtually all our markets served by our Components segment, and it is in all regions of the world. Asia is just as soft as Europe right now. In Q1, sales in this segment were down 25% year-over-year and orders were down 34%. Based on the current order levels, we expect the Component segment sales to decline in the neighborhood of 40% in Q2. This is an additional 15% decline…

We are going to actually move to a different location. We understand there is a lot of static on the other end. If you could just bear with us for a couple of minutes, we will be back on.

Ladies and gentlemen, once again, please remain on the line. Your host line will be re-established momentarily.

Thank you for holding. We apologize for that. We had a serious static issue in the previous room we were using. We are going to resume now. Tom's going to start at the beginning, and we will go through it. Please bear with us if you did hear clearly. Thanks.

Thanks, everyone. I will speed it up a little bit on the first part of this. Apologize for that. I guess when it rains it pours. As I was saying, we expected a tough first quarter and it certainly turned out to be tougher than we thought, as a result of continued weakening in demand throughout the quarter. This was felt especially in our Components segment, where approximately two-thirds of our sales are related to consumer markets, and in the first quarter it was the consumer-related businesses that were hit the hardest. In Q1, sales in the segment were down 25% year-over-year and orders were down 34%. Based on this rate of orders, we expect Component segment sales to decline about 40% in Q2. This is an additional 15% decline, from our Q1 revenue levels, and of course as would you imagine, our Automotive business, which is our largest business is also going to be down about 40% in Q2. It was down 31%, organically in Q1. Now, it is pretty clear that this is a combination of weak end demand, coupled with significant inventory corrections going on. Everybody in the supply chain is trying to get their inventory in lines and shore up their liquidity as fast as possible which is exacerbating the inventory declines. Just to give you a little bit of a flavor for this, European new car sales and production in our first quarter were down in the 20% to 25% range, and our volume was down 36%; so, clearly a significant inventory piece. We are also seeing the same kind of adjustments in mobile phones and the computer end markets. We do expect that this trend is going to continue through the quarter, through the second quarter. In our other three segments; Networks, Wireless and…

Thanks, Tom and good morning everyone. Let me start by reviewing the sales performance by segment and end market, and then I will review our earnings, margins, cost actions and a few other items. Starting with our largest segment, Electronic Components, sales declined 25% in the quarter and were down 22% organically. The decline was broad-based with EMEA and Asia being down approximately 25% and the Americas being down 16%. These decreases were in almost all end markets, particularly hard-hit by the consumer related markets. Let me spend some time on the major consumer markets that we serve in the segment. In the Automotive market, our sales declined 35% overall and 31% organically. This was worse than we expected coming into the quarter as OEMs made deeper cuts in production to reduce vehicle inventory levels and this had a corresponding ripple effect throughout the entire supply chain. We estimate that global production was down 20% to 25% in the quarter. From a geography perspective, our sales in Europe declined 36% organically; North America, we experienced a 33% decline, and in Asia, we declined 22%. We do expect a further drop in global production in quarter two, particularly in Asia, where OEM production levels are forecast to be down as much as 40% year-over-year. In two other important consumer markets, computer and mobile phones, our sales declined 30% organically reflecting declines in both end unit demand coupled with supply chain adjustments. In the mobile area, despite the market slowdown, we continue to make good progress broadening our product offering, and our customer base in this market. Now, let me cover the major industrial and infrastructure markets served by Components. In the aerospace and defense market, we grew 1% organically. Sales to distributors, which account for approximately 40% of our sales in…

Thanks, Terrence. I am going to talk about Q2 and then wrap it up and we will open it up for questions. As I covered earlier, we expect our Q2 sales will be in the range of $2.4 billion to $2.5 billion, which is a 32% to 35% decline from last year's $3.7 billion. This sales decline coupled with our efforts to reduce our inventory will result in further reductions to our gross margin, as Terrence indicated. As a result, we expect the Electronic Components segment to have an adjusted operating loss in Q2. For the overall company, we expect adjusted earnings per share in the range of $0.05 to $0.10, and when you include the impact of the restructuring costs, this will result in a GAAP loss of $0.10 to $0.15 per share. Now, while we are not giving full year guidance, I would expect if end demand in our customers' markets levels out even at these low levels, our sales should begin to recover sequentially in Q3 as inventories in the supply chain get back to a little more normal level. Clearly, it is too early to tell to say this with confidence right now. Just to summarize what I mentioned earlier, the strategy that we launched two years ago and the financial goals that we set out, which were basically to strengthen our portfolio, position the business to grow consistently at 5% to 7% and deliver a 15% operating earnings in fiscal 2010, are still the right goals for us. Obviously, the timeframe has changed because of what's been going on in the global economy. We have not taken our eye off these goals. In the meantime, we are focused on four key areas. One, ensure our liquidity and strong financial position by reducing inventory and carefully…

(Operator Instructions). We will go to Shawn Harrison with Longbow Research. Please go ahead.

Hi. Good morning. Looking at some of the additional restructuring announcements, as well as that 12% EBIT margin target, that requires, I guess, $12 billion in sales. What would you believe consolidated EBIT margins would be with the current sales run rate if we level out here in the June quarter? How much of these additional moves would flow into 2009 in terms of a dollar amount? Would any of these moves get the Electronics Components business back to break even in the June quarter?

Right now, with the actions we are taking, when we get through them all, and they do not all hit this year, it is about $300 million worth of cost savings. We would expect to be in the neighborhood of a $200 million savings run rate as we end the year. What that would do, if volumes stayed at our Q2 level, is to put us in the mid-single digit adjusted operating earnings range. What was the last part of your question?

It was about the incremental savings from some of the actions announced this quarter, and whether the Electronic Components business would be breakeven in the June quarter? It does not sound like it, at least from the initial commentary.

Shawn, on that, certainly right now components is being hit very heavy with volume, as well as, as we go through and we reduce our inventories. When you look at that, with the cost actions Tom laid out, you know, it would be around breakeven where we are at certainly, it will also be dependent upon how fast we take our inventory out.

Okay. With the $200 million savings run rate, how much of that is incremental this year from what we have already witnessed in 2008?

All of that is incremental.

Okay. Given the fact that you have suspended the share repurchase program, and maybe priorities for cash usage right now, or are you willing to let it build on the balance sheet until things begin to stabilize and then you start up the program again or do you have acquisition potentially you are looking at in this down market?

Let me talk about one part, and then Tom can talk through the acquisitions. When you look at it, Tom mentioned $800 million of free cash flow if we stay at this level before restructuring cash. I mentioned there is about $250 million of restructuring cash that we will do as we go through these actions this year, and then certainly we have our dividend, which also runs about $290 million per year. They will be the first two priorities, Shawn. Capital above that, we will certainly retain as we go through this uncertain time. They are the priorities right now. Tom?

That is absolutely right, maintain our liquidity, pay the dividends, but we continue to scan in these environments, because there are going to be, I think we talked about it last quarter as well, more opportunities. We are going to be very selective as we said. Up until now, most of our efforts have been strengthening the portfolio through divesting. Clearly, we believe that there are a number of areas that we are going to want to make acquisitions in, but we have to make sure we do first things first

Just following up on that, there is been no discussion on looking at the dividend then at this point in time?

No.

Okay. Thanks a lot.

Thanks, Shawn.

We will go to Brian White with Collins Stewart. Please go ahead.

Good morning. I am wondering if you could talk just a little bit more about the auto markets in terms of the inventory levels that you see there? Also some of the plant shutdowns, what did you see they the December quarter? Is this carrying into the month of January?

Sure. There were unprecedented plant shutdowns over the holidays. Typically, many of the OEMs in the US and Europe will shut down for a couple weeks. I think the average was four to six weeks at virtually every major OEM in those two parts of the world. I am sure you have read about what is going on in Japan with Toyota shutting down and doing furloughs. It is pretty broad based right now. It feels like inventory is about twice as high as most of our customers would like it now. The shutdowns are starting to bleed that off and then the harness makers and the cams, the folks who make the subsystems, we actually get specked in by the OEMs, so we sell through them. They are working their inventory down as well. As I said earlier, if demand were to stabilize now, it is going to still take through the rest of this quarter and into part of the third quarter to get inventory levels balanced. Once that happens, then you should see our revenue start to track with end demand

On the restructuring, I just want to be clear, when the down-sizing in the March quarter is finished, are you saying that in the last two quarters you reduced your workforce by 25%?

20%. Some of that will happen in Q3, but when you look at that, we started the year right around 94,000 employees. You're basically going to have approximately 20,000 employees out, certainly, heavier weighted in the manufacturing area, as we bring down the manufacturing resources.

Okay. Where is it more heavily weighted in terms of region of the world?

Asia by far that is where we have the most of our labor intense production jobs, although there is some in the US. As you know, we have been adjusting the US footprint in the past for a while, a little bit in the US, quite a amount in Asia in Q1, a fair amount in Europe and Asia in Q2.

Thank you.

You're welcome.

Our next question comes from Steven Fox with Banc of America. Please go ahead.

Hi, good morning. A couple of questions; first of all just following up on the auto question, can you give us a sense of where you stand in terms of sales split between that go directly to OEM versus going to Tier 1 or harness makers, how much exposure do you have and how much inventory is that, which different level in the supply chain do you think?

Hi, good morning. A couple of questions; first of all just following up on the auto question, can you give us a sense of where you stand in terms of sales split between that go directly to OEM versus going to Tier 1 or harness makers, how much exposure do you have and how much inventory is that, which different level in the supply chain do you think?

Most of our sales go to the harness makers and the cams as to Tier 1. We do not sell very much directly to the OEM. Although, the vast majority of what we do sell is specked in. The way it works is, we actually do the selling and the engineering early on in the architecture, heavily with the OEM, but the shipments actually go to the harness makers who attach the connectors or to the Tier 1, Boschs of the world, who put the headers together.

Given that you are seeing more concern about those suppliers to the OEM, for instance, Visteon, there is been talk about Visteon potentially filing for bankruptcy. Can you talk about how you're protecting yourself, since it is a more fragmented customer base, how do you feel about your receivables there?

Given that you are seeing more concern about those suppliers to the OEM, for instance, Visteon, there is been talk about Visteon potentially filing for bankruptcy. Can you talk about how you're protecting yourself, since it is a more fragmented customer base, how do you feel about your receivables there?

Steve, it is Terrence. Number one, Visteon we have no exposure to it.

Okay.

Taken action previously with Visteon to make sure, we manage our credit risk. Certainly, we are monitoring across all of our industries, not just automotive or customers. When you look at our receivables, certainly our largest customer, which is in the automotive space, is less than 4% of our receivables. Our receivables continue to be good, collections are steady, but we are monitoring that actively. We have taken actions, like we did with Visteon, where appropriate. It is really a day-to-day monitoring that we are doing in this environment to protect ourselves.

Great. That is very helpful. Just two clarifications; basically the restructuring that you just reviewed, I mean there were two plant closing announcements. Would you characterize everything on plan? There is been no acceleration of the plans or? It seems like everything is steady state with where you thought it would be about three months ago, is that fair?

I think right now, Steve I would say it is on plan. As, you know, at the end of summer last year, we announced three significant actions in Europe. Still working through those; they are on plan. These two additional ones, we recently announced here. The bulk of the cost take out right now is just getting production levels in line with the current low levels of demand. Our intention is to accelerate some programs, if possible, that were originally intended in 2010 until later this year. We need to get through the five we have just announced in the last few months and the five that we were winding down before that. We have about 10 actions that we are closing out, as we speak.

Okay, fair enough. Lastly, could you give some clarification on the decision to reduce your exposure to the commercial paper market in the quarter?

Steve, that reduction was done back in right when the commercial paper was disrupted back in October.

Okay.

Actually, right after year-end and I believe we talked about in the last call. When the market got disrupted and it was challenged, we did go into our credit facility for about $190 million. We are in the commercial paper market actively, but we have had what we have put in our credit facility, we have maintained onto that. We still have access to the commercial paper market, and we anticipate we will.

We did bring down debt about $200 million in the quarter. As what we are maintaining capital as Tom talked about.

Okay. In other words, that whole change on the cash flow all appeared in October, when things were at the worst?

Correct.

Okay. That is helpful. Thank you.

Thank you.

We will go to Matt Sheerin with Thomas Weisel Partners. Please go ahead.

Yes, thanks. I just want to ask a question regarding your revenue guidance and the confidence that you have it. In fact, the range looks a little bit more narrow considering that it looks like it is going to be very back-end loaded quarter. You talked about inventory reductions at your customers. Could you talk about the confidence that you have, what backlog looks like, what book-to-bill looks like in the areas where the range specifically in end-markets, where the range should be a little bit wider?

If you look at our Components segment, we are going to be down about 40%. Clearly, that is the piece that is getting hit hardest. That reflects the order rates we have been seeing. The orders for the last few weeks coming out of the holiday time have settled in around where they were in November, before the holiday time. I mean, there is not enough data points there to call it a trend. I guess as much confidence as can you have in this environment, as well as based on what your backlog is. In our other businesses, the orders are softened. They are holding up and we are looking at their wireless and undersea being about flat. That is all in the backlog, for those two. That is not really contingent on any orders really at all. In our networks business, we are going to be down about 10%; that is a little softer than Q4. I think I feel reasonably confident. I mean it is a pretty low-level of business being off 35%. If you look at the dull weather of companies in the industries that we sell to, whether it is semiconductors or that could compare to handsets, automotive, their end demand is not down that much. A big part of this, as we mentioned earlier, is inventory correction, but it is hard to call, I mean.

Yeah. Sure. It sounds like you have seen at least a little bit of stabilization in terms of daily order run rates even though it is at a much lower level?

Yes, we have. I feel a lot better and we have a couple more weeks like that and starting with the beginning of December, we hadn't seen that until this point. That is what our forecast is based around.

Okay, great. Just as a follow-up, concerning the pricing environment. Are you expecting customers to come out and are you expecting lower ASPs once volume orders come back?

We are going to see more price pressure. I think there is more, certainly customers are, when you go see them, they talk about hey, in this environment you need to give us lower prices. I mean, our position as well, the agreements we entered into with you were at volumes that were significantly higher. As you know, especially in the interconnect business, every particular project or opportunity is its own negotiation. Our Q1, our pricing did not deteriorate. It is pretty much held on, and that is one thing that we are being very disciplined about. We have to play it out. We do not want to lose good business, for sure. I would expect that there will be a little more price erosion. So far, we haven't seen it and we haven't lost any new awards, because we are not willing to drop price. It is something you have to watch every day.

Okay. Thank you.

Thank you.

We will go to Jim Suva with Citi. Please go ahead.

Thank you. Regarding your EPS outlook of a nickel to a dime, I understand that the inventory work down has a big impact. Maybe can you split out of how much inventory you expect to work down? What did that do to EPS and/or margins for the March quarter? Do you think it will be all worked through in the March quarter or is this multi-quarter work down that Tyco and the supply chain needs to work through?

If you look at the second quarter, we estimate right now that that will have about a 200 basis point impact on our margin as we work through our inventories. With what we are planning to, we will need probably more than a second quarter to work through it, to be fair. The plans that we have in place right now would be about a 200 basis point impact on our gross margin at that 2.4 to 2.5 level that we quoted. I would anticipate, if we stay at that 2.5 level, around, we would need more time to work through inventory to continue to bring it down and continue to liquidate the working capital.

Great. Regarding these tax sharing agreements that you have; can you remind us of how long they continue to go on? There has been a tremendous amount of volatility in the other income line as well as the tax sharing agreement and when we have you reincorporate to the other jurisdiction will that impact that at all?

Yes, number one; let me take the second half of your question first. Moving to Switzerland from Bermuda does not change the tax sharing agreement. That relates to legacy Tyco liabilities that all three of us share. Just changing the jurisdiction of incorporation of our parent company does not impact that. These relate to open tax matters that go back to 1997, up to basically the date of separation. This will be ongoing for quite some time, as we go through audits, both in the US and in other places. You will see, as you have seen, some adjustments as matters are closed out or settled. What you saw in the quarter are other income that we guided, about 13% came down to $1 million of expense. Almost the exact same corresponding effect was the benefit in our income tax expense. Net-net it had a very negligible impact on EPS. I think it was about a penny. Due to how the arrangement is set up, we will continue to have volatility through that for quite some time.

Quite great. As a housekeeping item, is there any precedence or have you been notified by Standard and Poor's about inclusion or exclusion the S&P 500 for this change?

Our next question will come from William Stein with Credit Suisse. Please go ahead.

I'm going to wind up asking that one as well. First, I'd like to focus on inventory. Was kind of surprised, I think it was down slightly, but I think there was a $61 million write-down from state of New York, which would imply inventories excluding that actually grew in a quarter where sales were down pretty significantly sequentially. Can you help us understand how that happened?

Let me handle the first part here. Inventories grew about $100 million, when you take out what you said, State of New York, when you look at the face of the balance sheet. You got to that take $61 million out. When you remove currency effects it grew slightly over $100 million. It really was us trying to chase it down. When we started the quarter, we assumed we were going to be around $3 billion. That is where we were loaded to and really late in the quarters when it slipped. From that viewpoint, we built inventory which now we have to work out like we talked about both in Q2, and if it stays at a lower level after that. From that viewpoint, that definitely inventory, when you look at the cash flow, is an area where when you look at working capital, we have to make ground up there, based upon where the market ran away from us in quarter one.

I would add to that Will, that we definitely cut production in Q1 versus Q4 of last year, but we did not cut it enough. I think it just a simple way of saying it. We were planning for that higher sales level and we just did not cut it enough. It is not an area that I think we shined on in the quarter.

Based on the current guidance for the March revenue, can you give us an idea of where you are targeting inventories to wind up?

Basically, we are shooting right now in the range of basically recovering about what we built in quarter one, to give you a range. Certainly, that varies by market and what we are trying to take out, but basically taking out what that build was in quarter one, which is in excess of $100 million, and certainly if we can do more we will.

Yeah, we are being aggressive at the same time. Not only is demand down, but the demand we are getting is more volatile than we have seen it. Releases particularly from our biggest customers are changing quite dramatically from what the backlog is. It is a challenging environment, but we are making progress on the inventory.

Okay, and then just one follow-up if I can on the reincorporation. Can you give us a sense as to the timing on this, whether there is any impact on the P&L and whether you have considered that there may be a change in your index membership?

Couple of things; timing-wise, we did file our S4 with the SEC. They have to review that and that is the process. As Tom mentioned, we would expect that we will be able to complete that in our fiscal Q3 or calendar Q2 as Tom mentioned. In that regard, we are on track for that. When you look at impact to the financials, there really is none. When we did this move, we are moving to a place where we do have much more presence. It is in a big region, and from that viewpoint, similar to what I answered with Jim on the index incorporation we had not heard anything from S&P on that yet.

Thank you.

Thanks Will.

We will go to Amit Daryanani with RBC Capital Markets. Please go ahead.

Thanks a lot. Just a question on the Electronics Components side on the auto degradation you guys saw. Can you just talk about what the monthly trends were in the December quarter and how does the month of Jan look like so far?

I mean October was worse than September, November was worse than October, and while we expected December to be worse than November, it was a lot worse. We saw really around the 10th or 15th of December on, just the orders even orders that were ready to ship were put on hold. It was pretty drastic and it was over close to 45% down in December. January, as I mentioned earlier, is leveling off a little bit. We haven't seen enough to feel like it has bottomed out yet. I wouldn't argue that, it hasn't either, but it is not materially better. The factories are just coming back on. The OEMs are really just coming back on line. I think it is going to take several more weeks to sense where we are really at with their end demand.

Got it. Could you just maybe talk about how do we think about the wireless business at this point, post the State of New York decision because my understanding is that it the only reason it was considered part of core operations was because we have that program?

First of all, all along, we viewed the wireless business as one of these parts of the portfolio with very high growth potential, because the reason we have been able to grow the business at double-digit rates and build the backlog and even with the trials and tribulations of New York have won significant businesses, because we really have state-of-the-art solution there, that especially in today's time, the need for interoperability is really very important, and it is IP based. It is really the only system that is being installed out there that is IP based which very much gives public safety communications leaders a lot of flexibility. Our wireless team understands this. We need to have high growth, high margin profile for this business in order for us to keep investing in it. We are all disappointed with the New York situation, but the team has ploughed through there and continued to win important deals. I think that is the most important thing for us right now, is to deliver on the other business we have and work through this dispute we have with New York.

Go ahead, sorry, Amit.

I just had one quick one now. If you look at the last 10-K, it looks like the international pension plan is under funded by $670 million or so. Could you just talk about any thoughts on topping that off or is there any issue we should be aware of with regard to the international pension plan at least?

Let me take that, Amit. When you look at the international pension plan, you can't think about the international pension plans like we think about US plans. Most of these plans do not have trusts and they are not funded plans, which is just how the plans are structured internationally. Certainly, it will be a commitment over time, but you do not do contributions to the vast majority of our international plan. Most of our funding relates to the US plan, which was previously fully funded and is now slightly under-funded based upon market movements. But, the international plans really would not make contributions of any substance.

All right. Thanks a lot, guys.

Thanks, Amit.

Thanks, Amit

We have time for two more questions, please.

We will go to Carter Shoop with Deutsche Bank. Please go ahead.

Good morning, just a couple of quick clarifications and then one question. When you talked about the free cash flow goals of $800 million at existing levels, was that existing 1Q levels or where you expected to be in 2Q. If it is for where you are in 1Q; what's your expectations given what we know about 2Q?

It is based on second quarter level, Carter.

Okay, great.

The key, as you know, is working off the working capital.

Right.

Were you saying that you expect to reduce inventory by the $100 million that you have built in 2Q or is that in addition to the normal inventory reduction in conjunction with the sales decline?

It will be to basically burn off what we built in quarter one by the end of Q2 and then certainly we will have to continue to go above that and some of that may come in Q2 or Q3.

Despite the sales decline, do you expect inventory to only decrease by about $100 million?

It is about 150.

Okay. Lastly, why aren't we getting a little bit more aggressive here on the restructuring, given what we are seeing on the sales side? I know there is a lot of facilities in Europe where it takes 12 plus months to restructure, etcetera, but why aren't we trying to accelerate this sooner versus waiting until the second half of the year?

Well, we have added two more in the US. We have three under way in Western Europe, which is quite a lot actually at one time. Because despite the volumes being down, we still have to be able to close the factories and the challenge there is it takes such a long time to work through with it you're always nip and tuck and then introduce those products into the receiving factory. Our intention, as I said earlier, I think we said at last quarter too is definitely along those lines, to bring more restructuring in, but we have to get these three done or substantially complete and we are making good progress. We are getting to a lot of the really critical milestones. You have to avoid the strikes and things like that. Even with volume being as much as it is down, if we would have a prolonged strike or something it would be pretty painful. We are making good progress there. Our intention is to definitely take advantage of the weakness out there and do more.

Would you say that management bandwidth at this point is the key bottleneck for more restructuring? Not necessarily just at the executive suite but in general.

It is risk reward. It is a balancing risk reward. I do not want to have more than three Western European auto plants in a state of transition at once. It is very, very expensive if you have a problem. You do not deliver for the customers, that is expensive in your reputation and it is expensive, and the penalties you could face and we have been avoiding that so far. We just really want to get further along on these and sort of be in to the last quarter of the game, so to speak on these, and then continue to move aggressively, because that is our plan.

Okay. Last question; you talked about a 12% operating margin at a $12 billion run rate. Looks like for the second quarter you'll be at roughly at $10 billion run rate. Would you be willing to comment on where that operating margin can go after the current restructuring is implemented at a $10 billion run rate?

Yes, for the balance of the year on the second half of the year as I indicated. I think about mid-single digits. If we were to stay at $10 billion, obviously would have to do more and I would say you'd start moving up toward high single-digits.

Okay. Thank you very much.

Okay. Well just one more question.

We will go to Amitabh Passi with UBS. Please go ahead.

Hi, thanks. I had a couple of clarifications, and then just a couple of quick questions. The first one was Terrence, I guess for you, the $0.05 to $0.10 guidance that you gave for the second quarter for EPS, I just wanted to confirm that there are no incremental losses anticipated in relation to currency hedges.

None.

Okay. You might have given this, I missed it. I think you talked about a $250 million figure for full year '09 as far as your restructuring charges, cash restructuring charges. Did you give a number for the second quarter?

We did not. It is for the full year. Certainly we are in the middle of executing. I would say the second quarter will be higher than about the $50 million we had in quarter one, but it will be how they execute out. I believe, right now, it will be between $50 million and $100 million for quarter two.

Okay, great, thanks. Tom, this is for you. If indeed we were to see demand trends stabilizing a little bit, how do you envision sort of a potential restocking in the channel? Would you expect sort of a more gradual buildup as we progress through the rest of the year or could we potentially see a snapback for a quarter before we get back to a more gradual ramp?

I think it would be more gradual given what everybody is going through. I think it is going to take a while for people to believe it is actually coming back. That is my own view.

Okay, and then just my final question. I was hoping you could maybe help understand the dynamics in your Communication Equipment segment within Electronic Components and your Comp Service Provider segment within Network Solutions. One was down 5%, the other down 20%. Just any color in terms of the dynamics in those two areas?

Com equipment, that was down about 13% organically. Certainly, we are seeing on the com equipment side the inventory that we talked about in the channel and demand, we are seeing obviously the Telco operators spending being down about 5%, projected, as well as businesses cutting back on capital. When you look at the communications service provider, what we saw in the quarter was slowing in US spending, but we did see some pickup in certain European carriers that for the past about year or so we have not seen. I would say the focus really is on fiber investment. When you look at it, one is the com equipment would both have a business element as well as a telecom operator element, whereas the service provider is all telecom operator.

The one portion of our networks business that was down 20% is our Enterprise or our building networks piece. That is a combination of new building construction really having slowed, and especially we are feeling it in the financial services market as IT spending has been cut really way back in light of the circumstances in that market. That is the one that was down 20.

Okay. Got it. Thank you.

Thanks a lot. Thank you, Amit.

Okay. With that we will wrap up the call. Once again we apologize for the technical difficulties. Keith Kolstrom and I will be around all day to answer any follow-up questions. Thanks for joining us again and everyone have a good day.

Thanks everyone.

Thank you.

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