Kevin Kessel - VP, IR Chris Collier - CFO Mike McNamara - CEO.

Jim Suva - Citi Brian Alexander - Raymond James Amit Daryanani - RBC Capital Markets Tejas Venkatesh - UBS Shawn Harrison - Longbow Research Osten Bernardez - Cross Research Sherri Scribner - Deutsche Bank.

Welcome to the Flextronics Fourth Quarter Fiscal Year 2015 Earnings Conference Call. [Operator Instructions]. At this time for opening remarks and introductions, I would like to turn over the call to Mr. Kevin Kessel, Flextronics Vice President of Investor Relations. Sir, you may begin..

Thank you and welcome to Flextronics' conference call to discuss the results of our fourth quarter and full fiscal year 2015 ended March 31, 2015. We have published slides for today's discussion that can be found on the Investor Relations section of our website.

Joining me today is our Chief Executive Officer, Mike McNamara; and our Chief Financial Officer, Chris Collier. Today's call is being webcast live and recorded and contains forward-looking statements which are based on current expectations and assumptions that are subject to risks and uncertainties and actual results could materially differ.

Such information is subject to change and we undertake no obligation to update these forward-looking statements. For a discussion of the risks and uncertainties, see our most recent filings with the Securities and Exchange Commission, including our current annual and quarterly reports.

If this call references non-GAAP financial measures, these measures are located on the Investor Relations section of our website along with the required reconciliation to the most comparable GAAP financial measures.

Before I turn the call over to our Chief Financial Officer, Chris Collier, I would us just like to remind everyone that we're hosting our Investor and Analyst Day in New York next week on Wednesday, May 6. We look forward to seeing many of you there. For more details and to register, please see our Investor Relations website.

With that, I will pass the call to Chris.

Chris?.

Thank you for joining our call today to discuss Flextronics' fourth quarter and fiscal 2015 results. Let's begin on slide 3 with our income statement highlights. Our financial performance for the fourth quarter and FY '15 reflects our continued portfolio evolution and diversification.

The past four quarters marked important progress as we deliver on our commitments. Revenue decreased sequentially by $1 billion or 15% to just under $6 billion which was slightly below the low end of our revenue guidance range of $6 billion to $6.4 billion.

While our industrial and emerging industries group or IEI and our high reliability solutions group or HRS, met our guidance, we were slightly below our expectations for both integrated network solutions or INS and consumer technologies group or CTG.

Both groups were off more than a typical March quarter seasonality and you'll hear more on this later from Mike when he talks about our business groups.

As has been the case all year long, the nontraditional parts of our business continued to see strong year-over-year growth as IEI grew more than $110 million or 11% year-over-year and set an all-time quarterly high. And HRS recorded its 21st consecutive quarter of year-over-year growth by expanding more than 7%.

Our fourth quarter adjusted operating income amounted to $178 million which was at the midpoint of our guidance range of $165 million to $190 million, despite the increased revenue pressure. On a year-over-year basis, this reflected a modest 2% decline on the 11.5% lower sales. Our adjusted net income was $157 million, increasing 8% year-over-year.

Our GAAP operating income totaled $164 million and net income was $135 million, both of which reflected our improved quality of earnings. Lastly, our adjusted earnings per diluted share for Q4 hit $0.27 which was at the high end of our adjusted EPS guidance range of $0.23 to $0.27 and represented a 13% year-over-year improvement.

Please turn to slide 4 for FY '15 income statement highlights. FY '15 was a year of steady progress and delivering on our commitments that resulted in generating all-time record adjusted EPS of $1.08.

While overall revenue in FY '15 was up only slightly, we made progress in growing the two areas of our business we're committed to expanding, IEI and HRS. As a bundle, they grew over 10% year-over-year.

Both our adjusted gross profit and our adjusted operating income grew over the course of FY '15, with adjusted gross profit up 3% and adjusted operating income up 13%. This helped drive adjusted EPS to $1.08, up over 21% versus the prior year. Turning to slide 5, you'll see our trended quarterly financial highlights.

I've underscored many times in the past that our margin is fundamentally a function of our business mix and it is our objective to move our long-term portfolio towards a higher mix of businesses which possess longer product life cycles and higher margins.

We're pleased with the fourth quarter margin performance and believe it demonstrates the benefit of our portfolio shifting towards a richer mix as our growing IEI and HRS business comprise 34% of our total revenues.

Our fourth quarter adjusted gross profit totaled $381 million, declining only $6 million year-over-year despite the drop of over $770 million in revenue. Our Q4 adjusted gross margin of 6.4% which was higher than our expectations, reflected an increase of 60 basis points versus last year.

The improved margin performance reflects a richer customer and product mix this quarter and better-than-expected execution on certain products, some of which were going end-of-life. This quarter our adjusted operating income amounted to $178 million, only slightly decreasing $4 million or 2% year-over-year.

On a sequential basis, our adjusted operating income decreased $29 million, primarily driven by the $1 billion sequential decline in revenues. Our adjusted operating margin hit 3%, reflecting an increase of 10 basis points sequentially.

We continue to believe that there is room for further margin improvement as our business expands and we continue to evolve our portfolio to a richer mix. Return on invested capital or ROIC, is a key metric that supports and guides our financial decision making and allocation of capital.

This quarter our return on invested capital improved to 24%, up from 22% last year and remained consistent with that of the prior quarter. This result reflects our improving earnings efficiency, combined with our strict discipline around total capital deployed into our business.

Now let's turn to slide 6 for some insight on our other income statement components. Net interest and other amounted to $0.5 million of income for the quarter which was meaningfully below our guidance of $20 million net expense.

While our net interest expense remained relatively flat this quarter, we benefited from realizing $6 million in foreign exchange gains and other income of approximately $12 million related primarily to a gain on the sale of a non-core investment.

For our June quarter, we believe that approximately $20 million in net expense continues to be the appropriate guidance. Our adjusted income tax rate for the quarter was 11.8% and our adjusted income tax rate was 10.1% for the year which ended up at the high end of our guided range of 8% to 10%.

We continue to believe that our annual income tax rate will remain in the 8% to 10% range absent any unforeseen discrete items. When reconciling between our quarterly GAAP and adjusted EPS, you can see the impacts of stock-based compensation expense and intangible amortization expense, net of tax benefits.

Turning to slide 7, I'll talk about our cash flows, net working capital and our share repurchases. Cash flow generation and more specifically free cash flow generation, continues to be a hallmark for Flextronics. We generated over $554 million of free cash flow during FY '15.

This was slightly below our targeted level of $600 million, primarily due to timing and related expansion in our net working capital. Our net working capital increased slightly by $32 million sequentially to approximately $1.9 billion and was 7.8% of our sales for the quarter.

We see this as a consequence of timing and anticipate this to decline next quarter. Overall, we continue to believe that our targeted net working capital to sales range of 6% to 8% remains valid, especially given the mix of our business. We're managing our capital spending with great discipline.

Our net capital expenditures of about $240 million were significantly below our depreciation and our target of $300 million for the year. This achievement was benefited by over $100 million in proceeds from the sale of assets during the year.

This put us at over $900 million in CapEx being invested in our business over the past two years, with a heavy focus of these investments centered on focused capacity and capability to support the expansion of our IEI and HRS businesses.

We remain fundamentally structured, disciplined and on pace to achieve our commitment to generate free cash flow of $3 billion to $4 billion for the five-year period ending FY '17. We continue to use our strong cash flow generation to consistently return value to our shareholders through repurchasing of our shares.

This quarter we invested $125 million to purchase just over 2% of our ordinary shares and for the year we have spent $416 million buying back almost 7% of our shares and representing an allocation of 75% of our FY '15 free cash flow. Now turning to slide 8, we'll review our capital structure.

We continue to sustain a strong financial condition, with over $3 billion in liquidity and just over $1.6 billion in cash, compared with total debt of slightly above $2 billion. We have no debt maturities until calendar 2018 and our credit metrics are improving as this quarter our debt to EBITDA ratios was reduced slightly to 1.6 times.

Our capital structure is sound and provides us with flexibility to support our business. And that concludes the recap of our financial performance for the fourth quarter and fiscal year. For FY '15, we're proud to have delivered improving financial performance and strong free cash flow.

The efforts and execution of our complete team is driving better fundamentals for our overall business, allowing us to continue to make steady progress and to deliver on our commitments.

I'll now turn the call over to Mike, who will provide you with his perspective on our performance, the current business trends, as well as discuss next quarter's financial guidance..

Thanks, Chris. Please turn to slide 9 for our fiscal year 2015 highlights. Fiscal 2015 underscored our company's ability to deliver on our commitments through steady execution, despite an overall flat demand environment. This was the eighth consecutive quarter of operating margin improvement, rising 10 basis points to 3%.

This performance helped adjusted operating income for the year grow 13% year-over-year to $751 million. Strong free cash flow generation continues to be a cornerstone of our business model. Free cash flow was over $554 million for the year, keeping us firmly on track for our five-year target.

Our continued profit improvement was reflected in our adjusted EPS which reached $0.27 and helped drive our FY '15 adjusted EPS to a record $1.08, representing 21% year-over-year growth. Consistently returning value to our shareholders remains our focus. This was evident during Q4 as we acquired approximately 11 million shares for $125 million.

In the last 12 months, we have retired approximately 39 million shares for $416 million and exceeded our commitment to return over 50% of our annual free cash flow. Our consistency in buying back our shares over the last five fiscal years has enabled us to reduce our net shares outstanding by 31% or 297 million shares.

In the past year, this past year, while investing heavily in our stock buyback, we remained diligent in continuing to invest in our business. We're making steady progress, refining our engagement model with customers focusing more on enabling innovation and optimizing their solutions.

Through our six product innovation centers, we have expanded our design and engineering relationships. In fiscal 2015 we had over 1000 design wins across more than 330 design customers and filed over 270 patents.

We're building out our sketch to scale value proposition, taking advantage of our position at the convergence of so many different technologies and industries to help drive the intelligence of things into more devices and industries than ever before.

Before covering our performance by business group, I'd like to take a few moments to comment about the macro environment and the acquisition we announced today of Mirror Controls International.

We would still characterize the economy as stable, except for INS where we have seen incremental softness in wireless, driven by reduced CapEx spending in the U.S., delayed CapEx spending in China and general softness in Europe. Overall, our revenue was slow in the March quarter and this will continue into the June quarter.

Our bookings this last year were very strong and we would expect INS and other business groups to accelerate in the second half of the year. We're pleased that even with the slow demand, our portfolio performed well with gross margins expanding and operating margins hitting 3%.

Please turn to slide 10 for a few brief comments about an acquisition we announced today. We recently entered into a definitive agreement to acquire Mirror Controls International or MCi, a global market leader in exterior automotive mirror controls which has a very broad geographic and customer diversification.

This acquisition further complements our existing automotive motion controls business and equally important, will provide important IP and a synergistic technology platform that we intend to apply across multiple business groups for use in numerous industries.

We expect this deal to enhance our operating margin, expand operating profit and free cash flow and to be EPS accretive, further solidifying our shareholder return initiatives. The deal is expected to close in our September quarter. Please turn to slide 11 for a look at revenue by business group.

INS declined 13% sequentially and was below our expectation for a high single digit decline. Revenue was $2.05 billion, reflecting a roughly $300 million decrease from both last quarter and a year ago.

In the quarter, our telecom and datacom businesses were weaker than expected due to overall industry headwinds as previously mentioned, while our storage and converged infrastructure businesses were better but still down sequentially, reflecting normal seasonality.

Our overall competitive position with INS remains as strong as ever, with strong bookings and the addition of new customer relationships and we would expect an acceleration of revenue in the second half of the year.

Per the recent announcement of Nokia Networks and Alcatel-Lucent merging, I want to establish that we have a long and successful history spanning over a decade as a strategic partner to both Alcatel-Lucent and Nokia Networks. The guided merger closure date is mid-2016.

We anticipate business as usual until that time and we're well-positioned to grow our current relationship. For next quarter, we expect INS revenue to be up low single digits. [Indiscernible] revenue declined 30% sequentially versus our expectation of a 20% to 25% decline.

CTG posted revenue of us just under $1.9 billion, down almost $800 million sequentially and $650 million versus last year. The revenue shortfall was primarily due to weaker-than-expected demand in smartphones; demand for consumer electronics, wearables and computing devices also declined, but in line with our expectation and normal seasonality.

We're guiding CTG to decline mid-single digits. IEI continued to grow above the $1.1 billion level and rose another $26 million or 2% sequentially, due primarily to broad demand increases across various groups. The 2% increase was above our expectations for stable demand.

For FY '15, IEI was the strongest performer for us with sales up 18%, reflecting over 40 new customers and 185 new programs launched. Next quarter we expect IEI to be up low single digits. Our HRS group performed in line with our expectations for stable demand as it declined less than 1% sequentially. However, it rose 7% year-over-year to $907 million.

Our automotive business declined just 1%, while our medical business was roughly flat. This marked HRS's 21st straight quarter of year-over-year revenue growth. Next quarter, we expect HRS to be down low single digits as both medical and automotive declined slightly.

As a group and individually, both IEI and HRS are targeting to deliver over 10% growth in FY '16. Now turning to our June quarter guidance on slide 12. Our guidance for the June quarter does not include any impact from today's announced MCi acquisition, as it is not expected to close until the September quarter.

For the June quarter, revenue is expected to be $5.6 billion to $6.2 billion. This range reflects a slight sequential decline of 1% at the midpoint. The midpoint is exactly in line with our sequential June decline of a year ago. Our adjusted operating income is forecasted to be in the range of $150 million to $190 million.

This equates to an adjusted EPS guidance range of $0.20 to $0.26 per share, based on weighted average shares outstanding of 580 million. The adjusted EPS guidance is approximately $0.04 per share higher than the quarterly GAAP earnings per diluted share due to intangible amortization and stock-based compensation.

Before I open the call for Q&A, I would like to briefly thank all Flextronics employees worldwide for their hard work during FY '15. This unified effort has enabled us to consistently deliver on our commitments, increase our customers' competitiveness and return value to our shareholders. With that, I would like to open up the call for Q&A.

Operator?.

Our first question comes from Jim Suva with Citi. Your line is open..

Thank you very much. And especially congratulations to you and your team on what appears to be a very interesting acquisition.

If I could ask a couple questions on the acquisition, can you help us understand a little bit more about the scale and scope of it, such as profitability, revenues, contributions, how should we kind of think about that? Is it fair to assume that maybe your stock buyback slows down a little bit as you get ready to prepare for that or how should we kind of think about that? Thank you..

This is a worldwide company. They have been in business for quite some period of time. The company's been around over 50 years. They have number one position in mirror controls and when you think about mirror controls, think about all the actuators and control aspects of what's in the mirror.

And as you know, they continue to be more complex year after year on cars. They produce like 60 million actuators a year, number one market share in the world as I mentioned, number one in China, very, very well-run company, a lot of automation in their product lines that creates a tremendous amount of efficiency and probably growing close to 20%.

So it's a nice space.

We like it because we're able to leverage it in different ways, not only typical leverage in terms of the materials pricing and tax and other aspects of -- other synergistic aspects, but we also like the fact that we were able to leverage some of these technologies into potentially other industries as more and more of the intelligence things creates activities where systems are adjusted on a real-time basis.

So we like the space, we think it's a good deal. We like the team and we're pretty excited about it and particularly we're excited about it because it's earnings per share accretive, it's operating margin accretive, it's operating profit dollar accretive and free cash flow accretive.

So as a result of that, we don't see it getting in the way of our stock buyback program at all just because we have such a strong balance sheet that we'll be able to absorb this readily and still maintain our go-forward commitment of shareholder return of about 50%..

And Jim, just to expand a little bit on that. We're going to provide further insight into the financial aspects of the transaction after we close and then even further insight next week at our Investor Day.

But in the announcement today and then in the materials that we provided earlier, we gave a depiction of what the last 12 months revenue was which is growing at real healthy double digits. We see that continuing. What we can tell you is that it has a higher than the typical margin range for this space, for our HRS.

It's a very robust margin profile and a significant amount of the business is actually locked in place. This is booked business over the next couple years and is across all the top 10 OEMs, so very stable.

And so we got very comfortable with how we're getting after this and one thing we're trying to be very clear and distinct on is the position that we remain committed to returning over 50% of the free cash flow to our shareholders and this transaction does not impact that.

We have a financial condition that allows us to do that as well as sustain this commitment to our shareholders..

Our next question comes from Brian Alexander with Raymond James..

Sorry to preempt the Analyst Day, but Chris any more color on the margin profile of the business? Are we talking well above 10% on an operating margin basis? Because you're paying over two times sales. So I'm just curious about the return on investment framework that you use to justify the valuation..

So we're not going to get specifically into what exactly that margin range is, but suffice to say that it is healthily above what the typical print is right now for the HRS space and what you would think about for the automotive. This is technology-driven, component supplier, global position.

There is a strategic aspect to this business where we're going to be able to expand on our existing motion control business as well as expand across the portfolio. There's other synergies that we foresee being able to contribute, whether it's tax synergies and the like.

We tried to be specific in the prepared remarks to find we see it margin accretive, EPS accretive, cash flow positive in year one. We'll give you more of this detail as we progress.

Next week Paul Humphries will be -- we're going to be providing a deeper insight into each of the segments of our business and we're going to be certain to expand on the strategic value and financial aspects as well as how we think about this transaction..

And then just a follow-up. So Mike, HRS, IEI combined I think are expected to grow mid-single digits in the June quarter on a year-over-year basis based on the guidance you gave and I know you just talked again about double-digit growth for the year.

So maybe just some more color on what gives you the confidence in the double-digit growth outlook for those two businesses. And then you referenced a few times overall acceleration in revenue performance in the second half, particularly as it relates to INS.

Any sense of magnitude on what kind of improvements we should see off of the June quarter that's going to be down about double digits? Thanks..

Let me address the first part first and talk about IEI and HRS. This is our long-term goal as you know, at least from what we can see for the next few years that we ought to be able to drive this double digits. We have a pretty strong book of business.

We had very, very strong bookings year last year and we have quite a few ramps that are going on right now. So the one thing that you do get in the HRS business, particularly in the medical and the automotive, is real strong visibility as to which products -- it takes a long time to launch a product but once you get them they're pretty predictable.

So our book of business is pretty strong. So it gives us a lot of confidence, both in the medical and in the automotive which is a subset of HRS. In IEI it's the same kind of thing, you don't quite get the visibility and the stability in the revenue profile but we do get a pretty good look.

So we booked a significant amount of business last year, we have more ramps going on than we've ever had before in Flextronics in those business groups. So we just have a reasonably good visibility to new programs which aren't dependent on the economy itself being healthy and that's why we get a little more confidence.

It's actually layered on programs onto an existing base as opposed to hoping the economy returns. On the INS, we particularly had a slowdown in wireless, really, more than anything else. We have a very, very strong position in wireless and if we look across the wireless industry, I know there's been a lot of data around the U.S. CapEx being down.

China has delayed their CapEx for other reasons so we don't view it as any kind of material reduction, really. It's just more of a timing issue as they sort out some things in their country internally. And Europe's -- it's slow and maybe it will just stay slow. But we do see the need for a second half recovery. We think that's part of it.

But we aren't just counting on that. We also have visibility into a number of different bookings that should start in the second half of the year which are incremental to any kind of core demand.

So we're hopeful that the end of the year is really going to pick up, not just on hope that the carriers pick up, but really new bookings that we're going to be able to go layer on. We've also had a very, very strong bookings year in INS. But those bookings haven't turned into revenue just yet..

Do you think, just to clarify, do you think INS will grow in the second half on a year-over-year basis?.

On a year-over-year basis? You know, Jim, believe it or not, at this point we're still hopeful that we can make INS be roughly flat with this year which would imply a little bit of growth relative to last year. So our forecast has that. Yes, it does..

The next question comes from Amit Daryanani with RBC Capital Markets..

Two questions from my end. One, I think Mike you talked in your prepared comments about very well positioned to grow your relationship with Alcatel-Lucent with the transaction. There were some media reports talking about you guys potentially buying some assets from them.

I'm just wondering if you could talk about your relationship there, your appetite to do asset acquisitions with Alcatel or just broadly within INS a little bit..

So our relationship's very, very strong. We have a pretty strong position in multiple countries with both these companies and we've been doing business for a long period of time.

So we're in a lot of different aspects of the supply chain, anything from printed circuit boards to optical to wireless to -- it's really a pretty broad relationship, geographically and product category-wise.

So as a result of that is, as they -- we participate in their supply chain as we can create value for them, so there's been talks about doing something with Shanghai Bell which I know has been part of it. We're not buying anything out of the Shanghai Bell JV. So those reports were not accurate.

But we do participate in many aspects of their supply chain and will continue to participate in many aspects of the supply chain over time.

So we're a valued member of their supply base and we would expect to continue to work with them to help them optimize their supply base and rationalize it as necessary and really participate with them as necessary to help them build a better company..

And then if I could just follow up with Chris, could you just talk about your next fiscal year, this fiscal year you're in now, what's sort of the free cash flow and CapEx expectations for the year? And hypothetically you end up doing another $200 million, $300 million transaction this year, is the commitment to buyback still intact, i.e.

whatever acquisition you guys do will come off the balance sheet and not from your buyback commitment?.

No problem. I'm going to spend a little more time obviously next week as we talk about this at our Investor Day, but let me just recalibrate as we think about free cash flow and Flextronics. We generated just shy of $2 billion over the last three years. We envision strong free cash flow into FY '16, as I highlighted in my prepared remarks.

We're committed, we're disciplined and we're on pace to hit our targeted commitment of $3 billion to $4 billion in the five-year period ending FY '17. So with continued earnings improvement, you're seeing evidence of us being able to operate with discipline around our working capital, managing it very well within the 6% to 8%.

We definitely have room to improve there and I mentioned that we will be bringing that down, the net working capital, into this coming quarter. We will maintain CapEx investments at or below depreciation levels. So you combine all that that gives us the conviction around being able to generate that free cash flow as we go forward.

This past fiscal year, $554 million of free cash flow reflects an 87% conversion of our net income. We actually see us being helpfully able to sustain that and grow that. Taking that secondarily, we split over 75% of that strong free cash flow to shareholder returns.

And as we've said before, we have an unwavering commitment to increase shareholder value and we're creating that shareholder value. The best use of that has been taking our free cash flow and putting that to the buyback.

And as we made mention in our prepared remarks earlier, this transaction does not dissuade or impact that commitment to continue with that level of shareholder value creation..

[Operator Instructions]. Next question comes from Amitabh Passi with UBS..

Hi, this is Tejas, on behalf of Amitabh. Based on the guidance that you gave, the gross margin for the June quarter appears to be coming down, although mix appears to be more favorable with consumer being a smaller proportion of mix. So I was curious if you could talk a little bit more about that and why that is..

Certainly. Let me just try to provide a lens into that. If you think about the June quarter in the midpoint of our guidance, it actually comes down a bit in revenue. We come at around $5.9 billion. The mix percentages is roughly the same.

If you think you're going to have around a nontraditional of the IEI and HRS businesses, comprising roughly 34% again. But you actually have a downdraft because if you go in the midpoint here of some revenue and the associated contribution of that downdraft, you can measure in terms of say $3 million or so.

So as you're thinking about all this, you see a print that we just did of about $178 million of adjusted operating income. The midpoint of our guidance, if you will, puts us at $170 million. So you're coming down roughly $8 million.

You have some of the impact from the contribution of the less revenue and we also have some different ramps as we're staging for the back end of this year, as well as maybe some investments we're making around some selling and strategic marketing and other efforts so it moves a couple million bucks here or there.

So we're talking about an $8 million, $3 million or so is from contribution, the other is from operational decision making and we have the ability to actually do better than that and we aim to do better than that..

And also could you remind us how much repurchase authority you have remaining currently?.

Yes. Right now we have in the program -- this past year we've repurchased over $416 million, roughly 39 million shares. We have the authority that will end at our next annual general meeting. We have authority until then for another $250 million plus or so..

Next question comes from Shawn Harrison with Longbow Research..

Two questions, the first being just the decline sequentially in CTG.

I know there was seasonality but it being at worse than seasonal, was it one product that was weaker or was there weakness across multiple products where things fell short of expectations?.

A lot of what you saw is some decline in smartphones that were higher than what we anticipated. We went in the quarter thinking it would be a little bit higher. You actually saw a little bit of inventory build as well which is basically stranded inventory relative to expectations of what we would ship.

So that's probably the biggest change in that business group. Everything else is pretty much -- it's going to be down but it's going to be down very normally relative to seasonality. So we didn't see anything out of line relative to seasonality with the rest of the product categories.

We just tended to ship a little bit less smartphones and it actually ended up stranding some inventory..

And then as you look through the year for the business, if it follows typical seasonality, it would be down in excess of, I guess, CTG in total would be down in excess of 10%.

Is that the right way to think about where revenues would trend for the business for 2016?.

In terms of June quarter are you asking?.

I'm thinking about the entire year. If you put up, I guess, quote-unquote, normal seasonality to it, it should be down -- it would imply it could be down high single to low double digits for the year..

So let me just give you a little bit of color as to what we normally see in seasonality. But June is usually pretty flat with March, it's typically up slightly.

We're forecasting it to be down just slightly, but usually the June quarter's up about 3% and then we get our big kicks in terms of significant double-digit growth both in the September quarter and the December quarter. So that's kind of our normal profile. Usually it's down a pretty significant double digits in the March quarter.

It's usually pretty flat in June and September and December are usually up double digits, so beyond that -- so it swings a lot. So we would expect, we talked a little bit about INS being more positive toward the end of the year, we talked about IEI and HRS being more positive toward the end of the year.

We'll get a nice seasonal pop in our CTG as well toward the end of the year. But I'd say for more color than that we've got Analyst Day coming up.

We have Mike Dennison who's going to talk a lot about the CTG and the trends he's seeing, the product categories that we're investing in, how we're trying to move that portfolio as well and what's important in CTG is not just the revenue. Keep in mind a lot of that revenue comes with lower margins.

So it can be empty calories sometimes and we're very, very focused at turning that business into a better mix of business, more and more technology products, more and more innovative kind of products, products where we add a little bit more value and can move the margin profile up a little bit and with particular focus on kind of the new OEMs that are coming into the marketplace.

So I'd just say any more color than that, let's leave it until Analyst Day, then we'll give you an update..

Okay and just as a brief follow-up, Chris, the response to an earlier question implied that you would be seeing maybe for the year, even just through the next three quarters, somewhere around 40 to 50 basis points of margin expansion year over year based upon the June quarter guide.

Is that the correct implication?.

If you look at the guidance that we're setting for June, it's very similar to what we just came out with.

We anticipated the March quarter to having it in terms of gross margin, a six handle and going all the way up to kind of where it hit it at six flow, we actually had some, as I said in the prepared remarks, we had some great execution in the period and we actually had some benefits from certain programs.

As we think about it, as we move throughout this year, I think you're going to see us continue to try to make that same progress in terms of margin expansion.

Margin expansion, again, is going to be fundamental based on the mix of our business and what we've said in the past, we're focused around expanding our operating earnings which leads to earnings per share. So I don't see us dramatically shifting all the way up 40 basis points in a real near term.

Right now we actually see a line of sight to improving the margin and I think we're just going to take it each quarter at a time to define that for you..

Next question comes from Osten Bernardez with Cross Research..

Just wanted to touch base with respect to the Alcatel Nokia transition and your relationship there.

Could you perhaps provide some color around what circumstances would be necessary for Flex to perhaps consider acquiring assets associated with those businesses? What would be needed for that to be attractive to you, given sort of your current exposure and your outlook that you've provided for that space on a historical basis? Thanks..

No problem, Osten. So as long as it meets the financial objectives of our Corporation and when I think about that you can look at the ROIC targets that -- not the targets, but the actual results that were presented in the deck. We have a target to achieve roughly 20% return on capital.

If we can actually achieve those results and we need to take over assets from this company, we would do it. What's interesting about taking over assets of Alcatel-Lucent or Nokia or anyone else is you typically have to buy equipment anyway, you have to buy inventory anyways.

So as long as we can take over those kind of assets and earn a return that's appropriate for the company and for our shareholders, then we'll certainly work to go do that. So we view the company as being relatively financially stable, probably be able to strengthen it up as a result of the acquisition and we view them as a really good customer.

If it meets our financial objectives, we'll go do it..

And then lastly, just with respect to CTG and your goals of improving the mix of business there, A, should we be considering any specific large programs in the second half of the year that could be large, I guess that could largely swing -- rather, drive the upside for the second half of the year? Any single large programs? And then B, have you considered or have you actively sort of deselected customers, if you will, within the past 90 days or so?.

We don't kind of deselect them. I guess the programs kind of run out and sometimes we don't participate again if our financial objectives aren't met or if for whatever reason it's not the right match between us and the customer. Usually there is a carry-on and a continuity of the programs.

But certainly if we're not able to do that, there may be a discontinuation. But that's not that typical. As far as larger programs, the larger programs are largely, in our thinking, in terms of where the portfolio's going over the course of the next year or so.

So usually the business goes up by 20% in the September quarter and another 10% in the December quarter is kind of a normal seasonality. So those are big programs that end up driving that and we work pretty heavily. So we'll have some of those programs. But nothing that's going to overwhelm the portfolio.

And keep in mind our objective, we're going to show you a little bit of this in Analyst Day, is to continually diversify that portfolio. Our objective is to have more and more customers in that portfolio where the operating profit is more distributed across a broader section, a broader number of companies.

And the more we can have the companies in that portfolio where we're creating more advantage, something that we call this whole sketch to scale, where we're adding more value right from the beginning of the innovation steps all the way through to the ramp in the scale of the production, these are the places where it's a more margin-rich, there creates more margin-rich opportunity for us.

So as we think about moving that, I would I say once again don't think as much about big revenue-driving programs that's going to kind of change our balance, but think more and more technology-enabled, more value creation programs where the operating profit is more distributed across a broader range of companies, that's really our objective.

It's not only the portfolio of our entire company we're trying to move, but within each of the business groups we're trying to build a very, very diversified portfolio within each one of those business groups..

Operator, I think we have time for one more question..

Thank you. Last question comes from Sherri Scribner with Deutsche Bank..

You squeaked me in.

Mike, I just wanted to get maybe some commentary from you on what you're seeing geographically and along with that, how much of an FX impact did you see to your business this quarter?.

Geographically, Mexico continues to be a very, very strong place to manufacturers. Demand in the U.S. has been relatively stable. Mexico as a manufacturing location continues to be more attractive.

China, to me a little bit slower and I think it's largely a part of a lot of the policies in China that we're seeing and I mentioned the CapEx being delayed in carrier and I think a lot of that is just almost some political challenges over in China as they think about how they want to roll out their whole 4G and larger infrastructure.

And Europe continues pretty weak. So really not a trend different than what we've seen over the last year. So Europe weak, U.S. fairly strong, but not great, but stable. China being a little bit slower than normal but I think more policy created and the one thing I would add is India.

India as a manufacturing location and as a demand environment is probably picking up as much as anything, so that's probably where we see the biggest place of growth. And maybe I'll add one other thing, Sherri which is Brazil, because I didn't mention Brazil. A lot slower than it was last year. So I'd say a little bit slower.

And then as relates to FX, we're about 90% in U.S. dollars, so the FX impact is limited to us in terms of our revenue and our financial results. But the more, probably, appropriate impact is whether or not it takes any of our customers' numbers down in these coming quarters.

So that's probably more the applicable impact as opposed to just having lower revenue as a result of FX..

And then just quickly, Chris in terms of the gain that you saw in the other income line, you said it was for the sale of a business.

What was that for?.

It was not a sale of a business. It was actually a sale of an investment that we had in that line item called Interest and Other that reflects our interest income and expense, as well as currency, as well as other non-operationally related income or expenses.

And so in the period we actually had -- we have an investment portfolio where we sold off one of those investments..

Okay, I wanted to thank everybody again for joining us on the call. We look forward to seeing you at our Investor and Analyst Day next week in New York. This concludes the conference call..

Thank you for your participation in today's conference. Please disconnect at this time..