Paige Bombino - Vice President, Investor Relations Jure Sola - Chairman & Chief Executive Officer Robert K. Eulau - Chief Financial Officer & Executive Vice President.

Mark T. Delaney - Goldman Sachs & Co. Sean K. Hannan - Needham & Co. LLC James D. Suva - Citigroup Global Markets, Inc. (Broker) Shawn M. Harrison - Longbow Research LLC Mitch Steves - RBC Capital Markets LLC Osten H. Bernardez - Cross Research LLC Christian D. Schwab - Craig-Hallum Capital Group LLC.

Good afternoon. I'd like to welcome everyone to the Sanmina Corporation's Third Quarter Fiscal Year 2015 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. Thank you. Paige Bombino, Vice President of Investor Relations, you may begin your conference..

Thank you, Ian. Good afternoon, ladies and gentlemen, and welcome to Sanmina's Third Quarter Fiscal 2015 Earnings Call. A copy of today's release is available on the website in the Investor Relations section. You can follow along with our prepared remarks and the slides posted on our website. Please turn to the Safe Harbor statement.

During this conference call, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We caution you that such statements are just projections.

The company's actual results of operations may differ significantly as a result of various factors including the state of the global economy, economic conditions in the electronic industry, changes in customer requirements and sales volume, competition and technological change.

We refer you to our Quarterly and Annual Reports filed with the Securities and Exchange Commission. These documents contain risk factors that could cause actual results to differ materially from our projections or forward-looking statements.

You'll note in our press release and slides issued today that we have provided you with statements of operations for the three months and nine months ending June 27, 2015, on a GAAP basis as well as certain non-GAAP financial information.

A reconciliation between the GAAP and non-GAAP financial information is also provided in the press release and slides posted on the website.

In general, our non-GAAP information excludes restructuring costs, acquisition and integration costs, noncash stock-based compensation expense, amortization expense and other infrequent or unusual items to the extent material.

Any comments we make on this call as it relates to the income statement measures will be directed at our non-GAAP financial results.

Accordingly, unless otherwise stated, in this conference call when we refer to gross profit, gross margin, operating income, operating margin, taxes, net income and earnings per share we're referring to our non-GAAP information. I would now like to turn the call over to Jure Sola, Chairman and Chief Executive Officer..

Thanks, Paige. Good afternoon, ladies and gentlemen. Welcome. Thank you all for being here with us. With me on today's conference call is Bob Eulau, our CFO..

Hello, everyone..

For the agenda today we have that Bob will review our financial results for the third quarter. I will follow up with additional comments relative to Sanmina's results and future goals. Then Bob and I will open for question-and-answers. And now I'll turn this call over to Bob.

Bob?.

Thanks, Jure. Please turn to slide three. Overall the third quarter was solid and a little better than our expectations. Non-GAAP revenue of $1.54 billion was down 4.1% from the third quarter last year but up 0.8% on a sequential basis. Non-GAAP earnings per share was $0.53, which was above the high end of our guidance for the quarter.

This was based on 85.5 million shares outstanding on a fully diluted basis. Our cash flow from operations was outstanding at $113 million and free cash flow was $96 million. During the quarter we used $47.7 million to repurchase approximately 2.3 million shares of common stock. We have $56 million in remaining authorizations to repurchase common stock.

I'll discuss cash in more detail in a few minutes. Please turn to slide four. From a GAAP perspective, revenue was up 0.8% or $11 million from Q2 to $1.539 billion. We reported net income of $24.5 million, which resulted in diluted earnings per share of $0.29 for the third quarter. This was up relative to last quarter by $0.12.

The restructuring costs for Q3 were $7.7 million. During the quarter there was an unfavorable environmental that came to light on a property that we had previously sold. As a result of this information, we took a noncash charge of $6 million during the quarter.

We're continuing to evaluate this situation and are working on various alternatives which may mitigate this expense. We expect overall restructuring costs to be in the range of $2 million to $3 million next quarter. Currently we have about $40 million in real estate on the market at list price.

During the quarter we sold real estate with net proceeds of $7.7 million. This quarter we expect to sell around $16 million of real estate later this week. My remaining comments will focus on the non-GAAP financials for the third quarter of fiscal year 2015. At $123.4 million, gross profit was up $6 million from the prior quarter.

Gross margin came in at 8%, which was up 30 basis points from Q2. Both gross profit and gross margin were favorably impacted by strong performance in the Integrated Manufacturing Solutions segment. Operating expenses were up $3.6 million for the quarter at $64.2 million.

This represents a 20 basis point increase in operating expenses as a percent of revenue compared to Q2. Spending was up this quarter, primarily due to higher accruals for incentive compensation. At $59.2 million, operating income increased by 4.6% from the prior quarter but decreased 2.9% from Q3 last year.

Operating margin was 3.8% which was a 10 basis point sequential increase. Other income and expense at $6.1 million was down 2% when compared with last quarter and down 17% from the third quarter last year. The tax rate for the quarter was 15% of pre-tax income which was consistent with what we had expected.

On a non-GAAP basis, we earned $45.1 million in net income, or $0.53 per share. Earnings per share were up $0.03 from Q2 and the same as Q3 last year. On slide five, we are showing you some of our key non-GAAP P&L metrics. Revenue was up $11 million or 0.8% from last quarter. Compared to Q3 last year, total revenue was down $66 million or 4.1%.

Revenue was up in the industrial, medical and defense and embedded computing and storage segments and more than offset the weakness in the communications segment. Moving on to gross profit, gross margin was up 30 basis points from Q2 and equal to last year. Gross profit was up $6 million from Q2 and down $6 million when compared to Q3 last year.

Our operating income increased 4.6% when compared to the second quarter. This led to $59.2 million in operating income and operating margin of 3.8%. Net interest expense was down $200,000 to $5.7 million for Q3 when compared to Q2 and down $2.5 million when compared to Q3 last year.

Over the last few years, our net interest expense has declined considerably as we reduced our debt. We will have some upward pressure on interest expense this quarter since there is an extra week in the fourth quarter of this fiscal year. I'll come back to the impact of 14 weeks in a few minutes.

Please turn to slide six where we are providing more information on the segments that we report. As you can see from the graph on the left, the Integrated Manufacturing Solutions segment was up $17 million or 1.4% from last quarter.

The increase in revenue, improved execution in several plants and a good business mix led to a 60 basis point increase in IMS gross margin from Q2. The second segment for us is Components, Products and Services. In aggregate, the revenue for this segment was down sequentially $2 million or 0.6% with gross margin down 80 basis points to 9.6%.

This sequential decrease in gross margin was driven primarily by our mechanical systems business and our services business. Now I'd like to turn your attention to the balance sheet on slide seven. Our cash and cash equivalents were $416 million. Cash was up $8 million from the previous quarter.

Accounts receivable were up $12 million and inventory was up $16 million. Property, plant and equipment was up $12 million for the quarter. From a liability standpoint, the major change was the $75 million increase in accounts payable. From a debt perspective, as of the end of the quarter, we have $424 million in long-term debt.

At the end of the quarter, our gross leverage on total debt was approximately 1.3. Overall, our capital structure continues to be excellent. Please turn to slide eight where we will review our balance sheet metrics. Cash was up $8 million from Q2. We're very comfortable with our cash at $416 million.

The cash levels were higher than normal in Q3 and Q4 of last year as we were completing the debt refinancing. Cash flow from operations for the quarter was $113 million and net capital expenditures for the quarter were $17 million.

The net capital expenditures were lower than expected primarily due to the delay in the purchase of a building until July. This led to $96 million in free cash flow for the quarter. Inventory levels were a disappointment in Q3. Inventory dollars were up $16 million from last quarter at $874 million while the inventory turns improved slightly to 6.5.

Compared to Q3 last year, inventory turns were down 0.5 turns, and inventory dollars were down $6 million. In the lower left quadrant, we are showing cash cycle days which combines our cycle time for inventory, accounts receivable and accounts payable. Overall, cash cycle time decreased from 45.2 days last quarter to 42.2 days.

This change was driven by a 1.5 day decrease in days sales outstanding and a 1.3 day decrease in inventory days of supply. In conclusion, return on invested capital increased to 15.4% for the quarter which was a nice improvement but not what where we want it to be. Please turn to slide nine.

I would now like to share with you our guidance for the fourth quarter of fiscal year 2015. This is an unusually challenging quarter to forecast because it contains 14 weeks. We operate on a 52- or 53-week fiscal year, and every six years or so, we have a quarter that contains 14 weeks.

The dilemma is that we know there will be some incremental shipments due to this 14th week, but we know for certain that we will have incremental spending due to the fixed nature of our employee compensation. We anticipate that we will get an extra $25 million to $50 million in revenue associated with this extra week.

The extra revenue is dependent on the shipment schedule of our customers in the 14th week. But in the final analysis, we think the 14th week actually hurts our profitability. Our view is that revenue will be in the range of $1.55 billion to $1.65 billion.

We're using the wider range this quarter because of the uncertainty regarding the extra week in the quarter. We expect the gross margin will be in the range of 7.8% to 8.2%. Operating expense should be $66 million to $68 million. This leads to an operating margin in the range of 3.6% to 4%.

We expect that other income and expense will be in the range of $6 million to $7 million. We expect the tax rate to be around 15%, and we expect our fully diluted share count to be around 84.5 million shares plus or minus half a million shares.

When you consider all this guidance, we believe that you'll end up with earnings per share in the range of $0.52 to $0.58. For your cash flow modeling, we expect net capital expenditures for Q4 at around $40 million. We completed the purchase of a building in the first week of July for around $20 million.

We also expect to close on the sale of land later this week for around $16 million. Depreciation and amortization will be around $25 million for the quarter. Finally, we completed the acquisition of a small oil and gas engineering and manufacturing company at the beginning of the fourth quarter.

This is a small acquisition but we expect it to be immediately accretive. We'll have more to say about this when we finish Q4. Overall, Q3 was a good quarter where our diversification over the last few years really paid off. We will continue to diversity our revenue base to position ourselves solidly for the future.

The cash generation was excellent for the second quarter in a row. Growth continues to be our number one objective but it is imperative that we grow with the right kind of profitable business. At this point, I will turn the discussion back over to Jure for more comments on our target markets and our business strategy..

Thanks, Bob. Ladies and gentlemen, again, I would like to add a few more things for our third quarter and outlook for the rest of the calendar year 2015. So let me recap third quarter, just add a few things to what Bob said. I am pleased with our third quarter results. We delivered solid results, despite mixed market environment.

Operationally, we executed well and delivered improved margin, generated excellent cash flow from operations of $113 million, and free cash flow of $96 million – these things that were in our control, as we continue to diversify our market segments. And that was a good job done in the quarter itself. Let me give you some year-to-date comparison.

Our revenue grew 5% the first nine months of fiscal year 2015 and our non-GAAP EPS grew by 19% first nine months of fiscal year 2015. Overall, good quarter with solid results based on this market environment. Now please turn to slide 11. I'd like to give you some highlights for the third quarter by revenue end markets.

Top 10 customers delivered 47.7% of our revenue, as we continue to diversify revenue by end markets and customers. And we also did add new customers with a good growth potential in the quarter. Communication networks delivered 37% of our revenue. That was down 2.9% versus last quarter, driven mainly by wireless segment.

We experienced weak demand in wireless all during the quarter where networking and optical was stable and performed well. Industrial, medical and defense delivered 41% of our revenue. That was up nicely, up 3.2%, driven by industrial and medical demand during the quarter. Embedded computing and storage delivered 22% of our revenue.

That was also nicely up, up 2.9%, driven by storage and automotive. Now please turn to slide 12. I'd like to give you some highlights here in revenue outlook by market segments for the fourth quarter of fiscal year 2015. For the fourth quarter, we see more stable market environment.

We're forecasting Communications Networks infrastructure to be up, driven by networking and optical – again we're forecasting modest growth there. For wireless, we're forecasting weakness to continue in the fourth quarter. I think longer term, we see improvements as inventory flushes out of the pipeline in the wireless side.

For industrial, medical and defense, we're also forecasting to be up for the fourth quarter. For industrial, most of the segments should be stable and should be fine, except oil and gas segment, as we continue to see continuous weakness. Oil and gas is less than 2% of this market segment, so it's not affecting us a lot right now.

Medical, we expect nice, modest growth in the quarter. For defense we think it's stable but we are forecasting to be flat for the quarter. Embedded computing and storage, this segment we're forecasting to be flat but we see automotive to have a nice growth for the quarter. Also storage will continue to be positive with some good opportunities.

We are forecasting weaker demand from our set-top box business which is about 10% of this segment. We're not dependent on set-top box anymore like we used to be, so it's well diversified now. Again, it's, as I said, it's around 10% or less. So overall for embedded computing and storage we're forecasting flat demand in this quarter.

Now let me make a few more comments about our business environment for the rest of the calendar year 2015. Global economy is still challenging but slowly moving in the right direction. Today most of our customers are still positive about the future as we meet with them and talk about what's going on in this economy.

I can also tell you in this environment, Sanmina is well positioned to continue to make improvements to both top and the bottom line. Also book-to-bill for the third quarter was strong, 1.07 to 1. This is very positive, as we have a strong pipeline, also new opportunities.

Plus I can tell you that we are well positioned with our key customers by delivering the right technology and best value solution globally. And we also remain confident about our business outlook for the rest of the calendar year 2015. Please turn to slide 13 now.

In summary, for third quarter, it was a good quarterly result in this challenging environment. I think we delivered a great free cash flow of $96 million as we continued tuning up our operations globally, and again, operationally, we executed really well. For the fourth quarter, demand is more stable.

The key here is to continue to diversify our end markets and grow our key partnerships, large and small. And also for the quarter, we expect to continue to generate cash. For the rest of the calendar year 2015, Sanmina is well positioned for the future and we believe we have opportunity to deliver financial improvements.

Ladies and gentlemen, now I would like thank you all for your time and support. Operator, we are now ready to open the lines for question-and-answers. Thank you again..

And your first question comes from the line of Mark Delaney with Goldman Sachs. Your line is open..

Yeah. Thanks very much for taking the questions and congratulations on a good quarter..

Thanks, Mark..

Jure, I was hoping you could elaborate a little bit more on the comments you were making about your outlook into the second half of the calendar year and that you expect that to continue to improve.

Can you just talk about what sort of visibility you may have at this point into the December quarter and what sort of trends you may be thinking about for the different end markets at this point in time?.

Yeah. Well, first of all, let's take one quarter at a time. As we just talked about the fourth quarter, we're going with a wider range of $1.55 billion to $1.650 billion based on everything that we see on the forecast and the real demand and talking to our customers. We visit our customers around the world.

I think the market is starting to stabilize for us, at least with the projects that we are involved in. As we look in December quarter, it's hard to forecast today but based on what we see today, we expect that to continue to be stable and hopefully, some improvements.

If you look at the industrial part of the business, that bucket, we think that's going to be pretty good. Embedded computing also should be good. I think in the wireless, at least – I'm sorry – at communications, we see network and optical to continue to be stable.

Wireless, it's hard to forecast at this time but we expect, at least for Sanmina, a little bit more stability in December unless things really change..

That's helpful. Thank you. And for a follow-up question, I was hoping you can talk a little bit about the proposed merger between Alcatel and Nokia? I know you said, Jure, last quarter you thought that would maybe create some opportunities for Sanmina over the longer term.

Now that you've had some more chance I imagine to talk to your customers, can you just give us an update on how you think that transaction may impact the company?.

Yeah. Our management, including myself, met with the key leadership on both sides of this company in the last 60 days. We had a very open and deep conversation about the future. And basically what we hear, our future is continuing with basically no change. We expect to have these two companies merge together. I think we're well positioned for both of us.

I think we'll be in a good position to continue to expand. It will be all dependent on their growth but we feel pretty comfortable as these two companies merge..

Thank you very much..

Thanks, Mark..

And our next question comes from the line of Sean Hannan with Needham & Company. Your line is now open..

Yeah. Thanks.

Can you hear me?.

Yes, Sean. .

Sean K. Hannan - Needham & Co. LLC:.

Yeah. Sean, excellent overview there. First of all, yeah, we invested a lot of energy in the last few years diversifying the company, especially in industrial, medical and defense. In the industrial side I think we – and Medical we did a really good job. The good thing is that we still have an opportunity to continue to expand and grow in that market.

It takes you a little bit longer to get into those type of customers but once you get them, as long as you're executing well, the relationship lasts for many years. So we're really happy about there.

As you know, on the industrial side, which we put oil and gas in industrial side, that's kind of been hurting us in the last couple quarters and it's going to continue to be very weak in the fourth quarter. So long term, we are bullish on oil and gas. And when I say long term, looking at things two years out. I think it's a good area for us to be.

As Bob mentioned, we did a strategic small acquisition of this engineering/really oil and gas, this smart technology company that we believe it's going to add a lot to us, as we want to grow and expand in this market.

Defense has also been kind of down and flat for us but we've been really expanding that part of the business, especially through our components side of the business. So I like what we see in our components side, especially, let's say, circuit boards, mechanical side of that side of the business.

So if anything, I think in this segment, we have opportunity to continue growth and I would say we'll see more growth, hopefully, in 2016. I think for next quarter, this thing will move in the right direction but I think we're going to see more growth. It depends what we have in the pipeline in 2016. I hope that's helpful..

That is helpful relevant to that segment, Jure. Just was looking to see if I could get it across all segments. And then I've got a follow-up question on SG&A for Bob..

Okay..

Do you want to comment on embedded computing and storage?.

Yeah. Yeah. Okay. I think embedded computing and storage, as I mentioned in prepared statements, we continue to diversify that. As you know at one time, set-top box business was mainly in that bucket. Today, if you look at that bucket, it's only 10% of that bucket. We have one strong customer, maybe 1.5 customers in set-top box business that is strong.

I think we'll continue the relation but the key there is to really diversify into storage, enterprise computing. I think automotive for us has been pretty good. We're going to right customers today. And so, so far, I think we like what we see in front of us, especially if I look at the opportunities. My sales people are probably listening to me.

They know I'm not happy. I think we can grow at a faster rate. But on a positive side, the pipeline is very strong and I'm hoping these things will start moving in the right direction sooner than later.

And again, to make a comment, again a little bit about the networking side, I think our networking side of business including optical networks has been very good. We were able to diversify there with the multiple key customers and also write programs. I think it's the key. And sometimes to really understand our business is what program is somebody on.

That is the most important. And what's the future of those programs. I can tell you that we have some good programs and hopefully the ones that are not as strong today, they'll turn around the next six months..

Okay. That's helpful. And then the question on SG&A, Bob, is there a way you can just talk a little bit about your ability to maintain this type of a spend level, or at least minimize the uptick here as there is an opportunity to push up the revenue line? Any color around that would be great. Thanks..

Yeah, I guess a couple comments. As I said in my prepared remarks, it's an unusual quarter because there are 14 weeks and so we'll be compensating people for working all 14 weeks. And we think that that creates some upward pressure on operating expenses to the tune of around $4 million or so. So that's a pretty unusual occurrence.

I think if you look over the longer term, you'll see that our operating expenses have been pretty flat for probably five or six years, and somewhere in the, I'd say, $62 million to $65 million range. And I think we can grow the business substantially without increasing our operating expenses very much.

So I think this quarter is a little bit an aberration due to the calendar but on an ongoing basis I really think we'll be able to control expenses pretty effectively..

Very good. Thanks so much for the color, folks..

Thanks, Sean..

And for our next question is Jim Suva from Citi. Your line is open..

Great. Thank you very much and congratulations to you and your team there at Sanmina..

Thanks, Jim..

Thank you..

I think you mentioned you made a small acquisition or two in the oil and gas segment, and maybe my memory is dead wrong or maybe it's somewhat accurate, as I think last year you also did some M&A in this area, too.

So I wonder, is there a kind of a change of heart or a change of strategy where all of a sudden this segment you seem to find a lot of compelling economics, too? One has to kind of scratch their head here when we look at oil prices at $50 a barrel compared to $100 a barrel in the past and wonder is it customers that are looking at kind of exiting this stuff? Or are you more interested in doing more business in that? Or is it more diversified business you're looking? I'm just trying to figure out about, am I correct with my memory in the past and why kind of the change of heart for this segment?.

Yeah. Well, Jim, first of all no, you've got a great memory. We expanded some partnership with one of the major players. We took over one of their plants. So as we looked at their marketing last two years especially we kind of look at it the long term how do you grow this market. It's a very unique market.

It takes long time to get qualified with these critical large players there and you have to have certain capabilities to be able to grow. Yeah, you're right, even a year-and-a-half ago, a year ago, we thought the oil market is going to be growing a lot faster than it is today. Unfortunately, the world changed. I guess it's good for us.

We're paying less for gas but from a Sanmina's point of view, we also look at this as an opportunity to expand in this market. So if we looked around for strategic – so if we find this small company that has a very strong engineering, it's heavily involved in design of some of the very critical components in drilling industry.

And even in this market today when things are down, this type of company are still pretty busy. So we're really building our capabilities. I think we're smart enough to know that this business is going to be slow, so in the short term we are very careful how far we jump.

But I think it's a good long-term opportunity for Sanmina, especially as we want to diversify into businesses that gives us, how do I say, better predictability long term, because we still believe long term, oil industry will come back. I think it's going to take some time.

I'm not an expert in oil and gas but what I'm hearing out there, it's going to take another year or two before we get to where it needs to be. But I believe this is the right thing for us. Our management, Sanmina, is very excited about this opportunity. So maybe I told you too much but that's what it's all about..

Well, great. As a quick follow-up then, and this is my last question, is can you help us quantify the amount? I would just assume it's kind of small but maybe help me quantify how small.

And then also, were these customer and customer assets before, or kind of newer companies that weren't customers? How should I think about the relationship and magnitude?.

So first of all, it is a small company. We'll give you more on that in a – definitely it's a small, it's really more technology driven. This is an independent company. This is not a customer.

This is an independent company, been in the business for about, what, about 20 years?.

Yeah, I think so..

Yeah. And it's got a really unique capabilities in designing and manufacturing some very unique components that go underground in drilling industry. So we'll give you a little bit more in the end of the fourth quarter but it's small. It's not going to make a big impact on Sanmina short term but as Bob said it's going to be accretive immediately.

This company made money I can almost say for the last 10 years, so every time, every quarter..

Thank you very much, and congratulations, gentlemen..

Thanks, Jim..

Yup..

And our next question comes from the line of Shawn Harrison with Longbow Research. Your line is open..

Hey, Shawn..

Hi. Good afternoon, everybody..

Hi, Shawn..

Been a while, calling in for Joe who's still out on his honeymoon. But wanted to dig in on the storage business. It sounded like you saw a little bit of upside this quarter and your commentary was relatively positive.

Is that more the market where you're seeing the uptick in storage? Or is it particular opportunities that are solely specific to Sanmina in the marketplace?.

I would say these are probably more specific to the customers that we are involved. We've been working some of these opportunities for a long, long time. So we're starting to see that. I would say a fair amount of our growth has been in the cloud side of the business with some unique opportunities.

And as I look at this coming quarter, that similar type of thing, Shawn, is that – I'm not a – as I said earlier, I think it's most important what projects we're on. So we continue – we should see a nice, nice demand in that side of the business..

Okay.

And then a follow-up just on the wireless communications equipment side, do you believe all the excess inventory that was out there has been bled off and now you're just dealing with true end demand, or is there still some excess wireless equipment inventory in the marketplace?.

Well, I said in my prepared statement that I still believe there's a fair amount of wireless infrastructure inventory out there and that needs to be flushed out. And I'm hoping that gets flushed out sooner than later and that we see more demand.

I think once it gets flushed out, I think we're going to see more stable demand, especially as we look at our opportunities. Fortunately for us we are involved in new technology in the wireless infrastructure, so as this industry turns up I think we'll have a benefit..

Just the excess inventory, is that geographically focused, China, the U.S., Europe? Any color there that would be helpful?.

I would have to use the word geographically because we are -Shawn, we don't have 100% data that we really know where these products get shipped. They could be made in China but shipped all over the world. So I would say what I see out there in the best – for us because we don't have the real data, I would say geographically..

Okay. Thanks so much, Jure..

Thanks, Shawn..

And our next question comes from the line of Mitch Steves with RBC Capital Markets. Your line is open..

Hey. Thanks, guys. I just had a quick question on your Alcatel-Lucent business. They recently announced that they're going to partner with Flex in terms of their optical business but you guys are stating that essentially the optical business should be good sequentially.

So I'm just wondering if you guys have any products that are involved there, or if it's – if you guys are agnostic on the optics side?.

First of all, I can't talk about product specific but the Flex deal with Alcatel has no impact on Sanmina. That's all I can tell you..

Okay. So I guess the implied message there is you guys don't have any optical business? But then my second question is on the wireless and wired increase in the second half of the year.

So are you guys expecting more of an impact for the wired business, I assume because – if the wireless is supposed to be muted for the next quarter?.

What I'm really saying is that our networking and optical networking part of the business should have a nice, modest growth in this quarter. And as I looked at the December quarter, we expect it to be stable. From wireless, we are forecasting for this quarter to continue to be on the projects that we're involved, weak.

And as inventory get – how do I say, flushed out, hopefully, we'll see a better time in the December quarter but it's hard for me to forecast December on the wireless infrastructure right now..

Got it. That's helpful.

And then last one for the 14 week quarter, Jure, should we assume that the December quarter will be a little bit softer then on a sequential basis because you're moving down from 14 to 13 weeks?.

From a customer demand, it's really hard for us to tell right now. And as Bob mentioned in his prepared statement, we definitely know we got an extra one week of cost in the fourth quarter. We'll see how things shake out but definitely, we'll have less weeks in December quarter but it's all in the demand.

Just because we have less weeks doesn't mean we cannot ship more. So we'll see how things shake out but we're not ready really to give you forecasts for December quarter right now..

Yeah, as I mentioned, it's really difficult, yeah, for both quarters to understand the impact. The customers' quarters really aren't changing. So it's really a matter of when the shipments are occurring..

Got it. Okay. And congratulations on the quarter..

Okay. Thanks a lot..

Thank you..

And our next question comes from the line of Osten Bernardez from Cross Research. Your line is now open..

Hello, Osten..

Hey. Good afternoon, everyone. Thanks for taking my questions. To begin, I just wanted to get some color if I could with respect to your industrial, defense and medical side of your business.

Could you highlight for us some specific examples of the type of products that you're recently engaged in with some of your newer programs?.

Well, when we talk about industrial, it's really everything kind of used in an industrial environment. It's a widespread, well-diversified type of products that we are involved. And that's why we expect the business to continue to be stable and solid, definitely on industrial and medical, as I said earlier.

I think defense for us, for this quarter we call it stable, could have some upside. But if we look at the defense longer term I think we are positioning ourselves to have a higher revenue in the future, especially on the components side of our business. But it's well diversified, Osten, across all the industrial products..

Okay.

And then secondly for me on the defense side, I was just wondering whether you have any thoughts on Lockheed Martin's proposed acquisition of Sikorsky? And how that could impact the SCI business as I understand they're both customers of yours?.

Yeah, we don't see any impact on these programs. These are small programs for us but we don't – if anything we see the business will continue and hopefully we'll have more opportunities but we do business with both companies..

And then just real quickly, lastly, on the extra week for the quarter, for the fourth quarter, is there an end market that you would say would be more – that has more volatility with that extra week at all?.

As I think Bob answered a few minutes ago the best way, customer quarters are the same so it's hard to predict from us exactly how they're going to – what's going to be the take rate. So it's hard for us to predict, to be honest with you..

Thank you..

And I think this goes across all the market segments. Hopefully we answered that, Osten..

Yeah. It's a really challenging question. And the reality is even once the fourth quarter's finished, we're not going to know for sure what the impact was of the 14th week. It's just impossible to know..

Got it..

All right.

Anything else, Osten?.

No, thank you..

Thank you..

All right. Thanks, Osten..

And our next question comes from the line of Christian Schwab with Craig-Hallum Capital. Your line is now open..

Hello, Christian..

Hey, Jure. Congrats.

So Jure, as we look out for the next three to five years with new customer opportunities, new programs and TAM growth plus or minus, can you give us a rough idea of what you expect your end markets to be able to grow at over that timeframe, not in the next quarter or two?.

Yeah. First of all, if we're strictly trying to be a $6 billion-plus company, for me and the rest of this management, it wouldn't be very exciting. We are really, have been positioning the company for the right growth, bigger growth in the last couple of years. I think we did some positive stuff.

Yes, I am disappointed with some of the growth but I'm very happy with the quality of the growth that we got and how well we diversified into the right customers for the future.

So those are two – as I look at the future, we definitely want to be a lot bigger company than $6 billion-plus, okay? We believe, as Bob mentioned earlier, I think our SG&A structure is such that it's made for – we can do a lot more than what we're doing today. So there's a lot of upside from that point of view.

I think if I look at my communication – I'm sorry – networking side of our business, I expect that for us to continue to grow that side of the business. I think we're well positioned with the existing customers and we've got some good new customers coming up. I think industrial and medical, similar type of thing.

As I mentioned earlier, we'll grow there. So I'm very optimistic, especially when you talk about, you said three to five, but I would say I'm very optimistic in the next 18 months to 24 months. And I think we can do a lot, unless the economy really goes the wrong way.

But as long as the economy stays with us, I think we can do a lot the next couple years..

Thank you, Jure. On the communications networking....

Christian, the market is big enough. That's not an issue. Just for us, fine. Making sure we attract and we partner with the right customers and right industry going forward. That's to me the most important. It's easy to get revenue for revenue's sake..

All right. Yeah, I get that.

On your communications networking business, can you remind us, roughly, what your mix is between networking, optical and wireless infrastructure today?.

Definitely, the networking and optical side is a lot bigger that wireless..

Right.

70%/30%?.

I don't want to give the percentages out, but I would say it's definitely wireless is less than 30%, a lot less..

Perfect. And then lastly, my last question, on the buyback. I like to see you guys spending more money this quarter than last quarter buying back stock.

As we – Bob, can you tell us how much cash you have in the United States for repurchasing those shares potentially after this $56 million is done?.

I actually don't know for this quarter but it's typical at the end of the quarter right around 50% of the cash is in the U.S. We're constantly moving cash around the world. And because of our U.S. NOLs, it's very easy for us to bring cash to the U.S..

Excellent. No other questions. Thanks, guys..

Thanks, Christian. Operator, we have time for one more question..

And we have a question again from Sean Hannan with Needham & Company. Your line is open..

Hi, Sean..

Hi. Thanks for taking the follow-up here. And I'm coming back to a question I think that's been addressed in some manner earlier in the call.

So just as I focus on the slides that you provided and the specific comment of the rest of calendar 2015, so if we're already guiding for September, the rest of calendar 2015 really has just got to be the December at least period.

I do appreciate we're not guiding for that explicitly, but the statement is explicit that we're looking for financial improvement.

So just trying to understand, is that relative to September? Is that on a year-over-year basis? I would assume it's a sequential type of comment but just really want to get a better understanding of what is being communicated there. Thanks..

To me, Sean, the way we look at it today is we just finished the third quarter. We expect to make some improvements in our fourth quarter fiscal year 2015. And our plan based on what we see today is continue to tune things up and improve the numbers in December quarter. I think we have that potential.

That's basically what we're saying, if I can put it in simple English as humanly possible..

Okay. So there is a potential for an up quarter, just we want to be careful in not saying that, that should be a guided comment..

That's not a guided comment. We're only guiding for a fourth quarter – and I'm saying based on what I see today, I think we'll make some improvements. I think we have that opportunity..

Okay, very good. Thanks, folks..

Thanks, Sean..

Thanks, Sean..

Well, ladies and gentlemen, again this is the end of our call. I appreciate your patience and time you're spending with us. And if you have any more questions, please give us a call. Otherwise we'll talk to you like this 90 days from now. Thanks a lot..

Yeah. Thanks, everyone. Have a nice day..

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