Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the TTM technologies third quarter 2019 financial results Conference call Samir decide TTR senior director of corporate development and Investor Relations well now where do you teach you don't disclose your state.
Thank you Brad before we get started I would like to remind everyone. On today's call contains forward looking statements with family meeting of the private Securities Litigation Reform Act 1995, including statements related to the TTM speaker business outlook.
Actual results could differ materially from these forward looking statements due to one or more risks or uncertainties, including the factors explain and our most recent annual report on Form 10-K , and other filings with the Securities and Exchange Commission.
These forward looking statements are based on management's expectations and assumptions as was the date of this presentation TTM does not undertake any obligation to publicly update or revise and you lease payments, whether as a result from your information future events or other circumstances, except as required by law.
Please refer to the disclosures regarding the risks that may affect TTM, which maybe found in net reports on Form 10-K tend to 8-K, a registration statement on form S. Four and a company to other FCC filing.
We will also discuss on this call certain non-GAAP financial measures such as adjusted EBITDA such measures should not be considered as a substitute for measures prepared and presented in accordance with gap and we direct you to reconciliation of non-GAAP to GAAP measures included the company's press release, which was filed with the FCC is available on T.T.S. website.
At Www Dot TTM dot com.
I would now like to turn the call over to Tom Adnan Yes.
Chief Executive Officer. Please go ahead, Tom Thank you for their good afternoon, and thank you for joining us for a third quarter 2019 conference call.
I'll begin with a review of our business strategy, including highlights from the quarter, followed by a discussion of our third quarter results Todd show, our CFO will follow with an overview about Q3 2019 financial performance and our Q4 2019 guidance well then open the call for your question.
[noise] in the third quarter 2019, TTM generated revenues and GPS within the guided range.
Better than expected foreign exchange offset weaker than expected operating results.
Our operational efficiencies were hampered by labor challenges in our aerospace and defense and cellular markets.
We work to manage increased demand from our customers.
Specifically north American facilities operating performance fell short of our forecast due to the tight north American labor market compounded by the summer vacation season, which negatively impacted our output.
In cellular we faced yield challenges early in the quarter as we added and trained employees to ramp new cellular products.
While yield stabilized in September the quarterly margin performance did not meet our expectations.
We're not satisfied with our third quarter. Overall result, and we are therefore take in concrete actions to cut additional costs in our commercial facilities as well as addressing operational bottlenecks in our aerospace and defense market.
Aerospace and defense business to adjust to higher demand realities.
Despite the challenges in the quarter, we generated solid cash flow from operations of $58.7 million in the quarter.
Looking into Q4, we faced softer sequential demand in the automotive and cellular end markets.
We remain focused on operational excellence and financial discipline as well as our strategic goals of diversification and differentiation.
In particular, we will continue on our path towards differentiation in the aerospace and defense and automotive end markets.
Overall market trends continue to support our efforts in the aerospace and defense end market.
She was significant areas for TTM missiles, and munitions and radar systems are expected to grow the fastest.
With a continued adoption of I Isa radar technology by all of the services and the conversion of next generation gallium nitride worst silicon germanium based platforms.
I used the radar my market is expected to grow at an 18% cagar.
Isa stands for active electronically scanned are right and represents the next generation technology for defense radars.
TTM as a leader in the design and manufacturing of RF sub systems and components for I used the radar systems and stands to benefit as defense programs upgrade from traditional rotating mechanical dis radar to fixed solid state you saw radar.
This technology allows our customers greater performance and range accuracy and sensitivity, which in turn increases detection and defense capabilities.
An important example of this technology is the recent held times radar system Award to Raytheon.
L. Tams stands for lower tier air and missile defense sensor and there's a lot Isa gallium nitride upgrade to the Patriot missile defense system.
Raytheon is using critical architecture design divide TTM in the L. times glassware, and TTM will be an important contributor in the pilot production systems to be built over the next few years.
In addition, the overall environment in the aerospace end market remains strong with commercial aircraft at record backlogs and air travel continuing to forecast significant growth for the rapidly growing middle class.
While increasing defense budgets and procurement provide a nice tailwind to overall spending over the next few years.
Near term strength is being driven by our strong program alignment with key defense program programs, which number more than 80.
Okay, and the market book to Bill ratio at the end of the third quarter was 1.48, driving our a and B program backlog to a new record level of $572 million, that's significant milestone for our aerospace and defense business and far exceeding the $504 billion.
In Q2 of 2019 and $448 million in Q3 of 2018.
Our aerospace and defense revenues grew 7% year over year in Q3, achieving a new record level.
We capitalized on positive market trends through our teams dual focus on supporting both customer build to print.
Designed to specification requirements across a broad based on major defense.
Commercial programs.
We also announced during the quarter did coffee gridley, we grizzly would be joining me GTM executive team on September Threerd, that's incoming senior Vice President and president of the a and B business unit.
And well formally assume the a and b leadership role at the beginning of next year.
Kathy joins TTM, most recently from Northrop Grumman Corporation, where she was the vice President and General manager of their advanced Defense Services Division meeting more than 5000 employees worldwide.
Phil Peterson currently TTM as executive Vice President and President of the A.M.D. business unit will transition to executive Vice President and Chief operating officer for the Corporation.
Brian Barber currently executive Vice President and COO will transition to an advisory role reporting to me with plans to retire next year.
I would like to thank Brian for his significant contributions to teach them over the years.
Moving onto our automotive business.
We continue to develop positions in new programs related to the Mega trends vehicle safety, you, an economist driving hybrid and electric vehicles.
Infotainment and increased connectivity requirements.
Our goal will be to support our existing customers as they adapt to this new world. While also building business with a set of new innovative technology focused customers.
Because of the above macro trends there continues to be a tremendous amount of innovation in the automotive electronics industry.
Our design activity remains robust, which bodes well for future revenues.
In the automotive market customer engagement begins well before a product ramps in the quarter. We won 89, new automotive design with a lifetime program value of $184 million.
It's 15 were eight apps related.
Designs that we are winning this year will contribute to revenues in future years.
Now I'd like to review our end markets.
For TTM, the aerospace and defense end market represented 24% of total third quarter sales compared to 21% of Q3, 2018 sales and 28% of sales in Q2 2019, we expect sales in Q4 from this end market to represent about.
27.
Of our total sales.
The cellular phone end market accounted for 19% of revenue in the third quarter compared to 17% in Q3 of 2018 and 6% in Q2 of 2019 <unk>.
We experienced a better than expected ramp in Q3, as we maximize outputs in our facility despite yield challenges.
We expect cellular to represent 17% of revenues in Q4 as demand was pulled into Q3.
Automotive sales represent represented 17% of total sales during the third quarter 2019, compared to 15% than a year ago quarter.
16% during the second quarter of 2019.
Automotive sales were better than expected in Q3 and grew year over year, primarily due to strengthen our you haven't solutions business.
Our PCB sales were flat on a sequential basis.
We expect automotive to contribute 14% of total sales in Q4 with the majority of the decline caused by a sequential decline in the M. solution segment.
The medical industrial instrumentation end market contributed 13% of our total sales in the third quarter compared to 14% in a year ago quarter and 15% in the second quarter 2019.
We strengthened our instrumentation customers there was more than offset by weakness in our industrial customer.
Due to declines in global industrial demand.
For the fourth quarter, we expect this market to be 15% of revenues.
Networking communications accounted for 13% of revenue during the third quarter of 2019.
This compares to 17% in the third quarter of 2018, and 17% of revenue in the second quarter 2019.
Many of our networking and telecom customers declined year over year due to softness in service provider spending as well as impacts from the trade war between the United States in China as we've stopped shipments of U.S. made wireless components to walk away.
In Q4, we expect this segment to be 14% of revenue as these trends continue.
And the computing storage peripherals end market represented 12% of total sales in the third quarter compared to 14% in Q3 of 2018 and 15% in the second quarter 2019.
We saw weakness in high end notebooks due to increased allocation of our capacity to cellular products and weakness in datacenter customers.
We expect revenues in this end markets represent approximately 12% of fourth quarter sales.
Next I'll cover some details from the third quarter.
During the quarter or advanced technology business, which includes H.T.I. rigid flex substrate and our estimates sub systems and components.
Good for approximately 41% of our company's revenue.
This compares to approximately 40% in the year ago quarter as 36% in Q2.
The sequential and year over year increases were due to growth in our cellular end market.
We are continuing to pursue new business opportunities and increased customer design engagement activities that will leverage our advanced technology capabilities in new markets.
Capacity utilization in Asia Pacific was 71% in Q3 compared to 80% in the year ago quarter and 56% in Q2.
Overall capacity utilization in North America was 57% in Q3, compared to 60% and year ago quarter and 60% in Q2.
The year over year declines in both North America, and Asia Pacific were due to softness in our non cellular commercial end markets.
Our top five customers contributed 38% of total sales in the third quarter of 2019 compared to 36% and for a go quarter and 30% in the second quarter 2019.
Our largest customer accounted for 20% of sales in the third quarter versus 20% in a year ago quarter and 10% in Q2.
At the end of Q3, 90 day backlog, which is subject to cancellations was $529.3 million.
Third the $514.8 million at the end of the third quarter last year and $503.4 billion at the end of Q2.
Our PCB book to Bill ratio was 1.21 for the three months ending September 30.
I'd like to conclude by emphasizing tpms commitment to operational discipline.
This year has been a challenging year in terms of revenue growth in our commercial end markets and we have experienced some execution challenges in the most recent quarter.
We're not satisfied underperformance is here and are committed to improving our profitability and operational execution.
We will continue to review our cost structure and reduced investment in areas, where we do not have a differentiated product offering while continuing to invest in areas, where we see growth and differentiation.
Our goal is for TTM to emerge from this period of softness in an even stronger position to service our customers as their demand cycles improve.
We expect to benefit from secular trends, such as Fiveg wireless technology, increasing automotive content and increasing use of RF electronics in the aerospace <unk> defense industry.
In the longer term, our strategic focus on diversification differentiation and operational discipline will pay off for TTM.
Investors and our customers.
Now Todd will review, our financial performance for the third quarter Todd.
Thanks, Tom and good afternoon, everyone.
The third quarter net sales were $716.8 million compared to net sales of $755.8 million into third quarter, 2018, and compared to second quarter 2019, net sales of $633 million.
The year over year decrease in revenue.
Due to declines in our networking and communications computing and medical industrial and instrumentation end markets, partially offset by organic growth in our core aerospace and defense and cellular end markets.
GAAP operating income for the third quarter of 2019 was $36.4 million compared to $54.6 million in the third quarter of 2018 and $16.8 million into second quarter of 2019.
On a GAAP basis net income in the third quarter of 2019 was $15.9 million.
Or 14 cents per diluted share.
This compares to net income of $27 million or 22 cents per diluted share in the third quarter of last year and $3.4 million or three cents per diluted share in the second quarter of this year.
The remainder in my comments will focus on our non-GAAP financial performance.
Our non-GAAP performance excludes acquisition related cost restructuring costs certain non cash expense items that are unusual or infrequent items.
Present, non-GAAP financial information to enable investors to see the company's through the eyes of management.
And to provide a better insight into the company's ongoing financial performance.
Gross margin in the third quarter was 14.8% compared to 17.5% in the third quarter 2018, and 13.6% in the second quarter 2019.
The year over year decrease in gross margin was primarily due to lower volumes and our non cellular commercial end markets.
Unfavorable shifts in product mix and to a lesser degree production inefficiencies.
Selling and marketing expense was $17.8 million in the third quarter or 2.5% of net sales versus $18 million or 2.4% of net sales a year ago and $17.5 million or 2.8% of net sales in the second quarter.
Third quarter, DNA expense of $34.2 million or 4.8% of net sales compared to $35.5 million were 4.7% of net sales from the same quarter, a year ago, and $31.7 million or 5% of net sales in the previous quarter.
Our operating margin in the third quarter was 7.5%.
This compares to 10.5% in the same quarter last year and 5.9% in the second quarter.
Interest expense was $17.1 million in the third quarter.
A decrease of $1.1 million from the same quarter last year due to payments, we made against our term loan and lower interest rate.
During the quarter, we recorded $5.6 million of foreign exchange gains.
Government incentives brought the total gain to $7.9 million by approximately six cents of earnings per share.
This compares to a gain of $2.2 million or approximately two cents of vps in Q3 last year and $4.4 million or approximately four cents vps and the second quarter of 2019.
Our effective tax rate was 13% in the third quarter.
[noise] third quarter net income was $38.9 million or 37 cents per diluted share.
Compared to third quarter 2018, net income of $55.1 million or 50 cents per diluted share and second quarter 2019, net income of $21.3 million or 20 cents per diluted share.
Adjusted EBITDA for the third quarter was $103.5 million or 14.4% of net sales compared with third quarter 2018, adjusted EBITDA of $122.3 million or 16.2% of net sales.
In the second quarter, adjusted EBITDA was $82.9 million for 13.1% of that sale.
Well from operations was the saw $58.7 million in the third quarter versus $8 million in the same quarter last year.
For the first nine months of 29 team cash flow from operations was $181.8 million versus $121.4 million in the same period last year.
Cash and cash equivalents increased at the end of the third quarter, the $316.6 million from $284.5 million in the second quarter as we accumulate cash for the repayment of our convertible bond, which will mature in December of 2020.
As a reminder, our convertible bonds will become short term debt on our balance sheet at year end.
Depreciation for the third quarter was $41.7 million net capital spending for the quarter was $25.8 million.
Now I'd like to turn the guidance for the fourth quarter.
We expect total record fourth quarter of 29 seem to be in the range of 640 million to $680 million.
We expect non-GAAP earnings to be in the range of 25 to 31 cents per diluted share.
Yes forecast is based on a diluted share count of approximately 107 million shares.
Our share count guidance includes dilutive securities touches options RSU, but no shares associated with our convertible bonds.
We expect it S DNA expense will be about 8% of revenue in the fourth quarter.
We expect interest expense to approximate 16 point.
<unk> dollar.
Finally, we estimate our effective tax rate to be between 11 and 15%.
To assist you in developing your financial models, we offer the following additional information.
We expect to record during the fourth quarter amortization of intangibles of about $11.4 million.
Stock based compensation expense of about $4.7 million.
Noncash interest expense of approximately $3.5 million and we estimate depreciation expense will be approximately $42 million.
That concludes our prepared remarks and that we'd like to open the lines for questions Brad.
Thank you if you would like to ask your question. Please signaled by pressing star one on your telephone keypad. If you are using the speaker phone. Please make sure that your mute function has turned off to a lot of your signaled to reach our equipment.
Again press Star one to ask a question, we'll pause for just a moment to allow everyone and opportunity to signal for questions.
And our first question comes from Matt Sheerin with Stifel.
Yes. Thank you just a couple of questions for me a first one just regarding the aerospace and defense market, which you've talked about having very strong bookings and backlog and good growth, but you also ran into some labor issues and it looked like that came in below your your forecasts.
But your guidance also implies.
As a percentage certainly up with some other markets down but still a good growth there. So could you get into the reasons behind.
Whatever headwinds you faced and what you're doing to overcome that.
Sure.
Thank you Matt.
The yeah, the talk about and we clearly.
We're very encouraged by by the bookings climate and being at a record program backlog.
Hello.
What that requires from GBM is not only ongoing investment in terms of capital equipment, which which weve, which we've been very regular with.
But also the addition of.
People.
Really not package together for our customers and as we do that of course, we had we add additional employees and bring additional employees the GTM.
I think you know as as a is well known it's a it's a tight labor market out there.
Particularly in the summer months.
And so we were we were in ramp, but not able to ramp this as quickly as we were hoping for and the third quarter as we brought in those people.
So we now have brought and people were through that sort of occasion.
Oh regular cadence of growth as we push into next year.
And then given the backdrop again, given the strong backlog backlog that we're positioned with so we're continue to the rapid sort of slow and steady progress, but we'll continue to.
To build up and grow with that frankly, we haven't backlog.
Okay.
Fourth quarter, and with or without which the with the ramp labor you're going to fulfill those orders in other words, you're not losing.
Is there anything because of that.
So what what happens here as there's there's always program timing and and so we're doing a delicate dance here in terms of bringing probably some programs.
And building a head on in particular programs, moving and then and making sure we're keeping in lockstep with other components.
As we deliver two programs and we certainly well output fell short of our expectations I think we continue to.
To hold our head up and deliver what we need to do our customers and their key programs and that's and that's what's really critical here.
So yeah, we're not we're certainly not losing share we're continuing to.
Just focus on our customers and delivering a complete solutions for them.
Thank you for that in my next question just regarding the networking communications segment, which has been down significantly you're not the only supplier to be calling a weakness both in telecom and networking, but I also know there's a why wait piece there. So could you help us sort of looking.
You know down mid 20% year on year, what percentage was due to walk away and then could you just parse out would you see in terms of the networking site ended telecom Fiveg side, both near term and as you roll into next year.
Sure and you're absolutely right I think the you know we're not alone in terms of seeing seeing the situation seen weakness.
Yeah. If you think if you look at a and again, we don't like Cod, we usually don't comment on on specific customers, but what I what I can tell you is overall.
Do you think about while is being.
Traditionally about a 4% to 5% of revenue type customer or what were what we're seeing here as an impact on our wireless component business, which came to us with anaren.
As you know the deanne or an operating margins were approximately twice what the traditional TTM operating margins were.
So is that if that impact that we're feeling.
In terms of bottom line impact if you think about the revenue, it's still less than less than 1%. So.
You know you're looking you really can't afford to 5% dropping the 3% to 4% that in that kind of range is as a piece of revenue.
To talk more about the general situation in telecom and Fiveg I think what we've seen as you know certainly that first wave of investment coming from China.
Some investment occurring in Korea.
A little bit of investment in Japan for the Tokyo Olympics, but these are really James and I think what certainly what were interbreeding.
That's happening right now is that some of our customers.
Overbuilt in anticipation of Oh that demand moving beyond China.
And.
And right now our Sir you being appointed where they're going to build they're going to they're going to bleed off that inventory.
As we head into next year and I think we're going to latter half of next year, we should be on to that.
Phases of the real ramp.
In Fiveg sort of back to where we expected to be with Fiveg. We've always thought it would be be ramping this coming year I think we'll see that I think it will.
Looks like it's going to be more towards the happened here in the first half.
Okay. Thanks, very much Tom.
Sure. Thank you Matt.
Thank you. Our next question comes from William Stein with Suntrust.
Great. Thanks for taking my question I wanted to automotive end market that was.
The unusual result, so what I expected it looks like.
I had my numbers right.
[noise] B.
Dictation eat my expectation timber pretty materially.
Going back down in next quarter do I have that right and if this continues to be this yes business. We know that's low margin.
Business for you I'm wondering if there's as you consider the.
Cost structure of the company you consider whether this will make sense as they go forward business for the company to participate.
Yes, Thank you will.
So yeah, there's the as the outcome of the rest way to look at really the automotive fees and how we've looked at it is there. It's just sort of pull out the solutions portion I think we had yeah. We had certainly you know strengthen this last quarter and then it's going to drop off next quarter and.
And so that's that's one of the reasons, we wanted to get some good visibility on where the PCB sales into that end market and and the PCB sales for sequentially not really flat.
As as we look as we looked at specifically the automotive market.
And they will be down slightly we look at.
At the forecast where in the fourth quarter.
So so definitely I.
Like you I would I would I think you're right to focus on the PCB piece of that.
Rather than the M. solutions piece, which moves around quite a bit in terms of the business. You know we continue to to what we like about the yen solutions business as it allows us to give a more complete solution to those customers, who like it would wish to see it and ER and also.
Similarly for startup efforts.
In automotive.
It's very helpful that have that assembled solution.
For our customers so while it is not a significant.
Profitability contributor in of itself.
Of course, the P. Diddy sale to go into the business are helpful and more profitable.
And and the business does give us an avenue to customers.
Particularly in that automotive world that is helpful for us.
So so that's where we continue to stand with with the M. solutions business.
Our GTM.
Same thing for of course, the business also services networking communication customers in the same way.
So that's where we stand there, but hopefully that gives you a better feel for the automotive situation.
Okay.
Me dig into cellular phone if I can.
I guess typically.
Q4 revenue pattern I think historically doesn't have a very typical pattern right.
I think as we progressed through the quarter the news flow out of Asia.
Suggesting.
That a.
The large north American.
Customer.
Demand indications looks constructed.
So I'm a little bit surprised by the Q4 guidance and Mark, Connecticut. Your biggest customer I would've expected flat performance I think you're guiding down and I'm wondering if you could.
Right and it sort of my math and expectations of what's driving the sequential decline that's correct.
Yeah. So.
Your your.
It's a very good question. This is actually the second consecutive year, where we would be saying that this quarter I'm actually as we forecasting our fourth quarter declining from third quarter.
And as we've always said, we you know we really build.
In the third quarter, we're very focused on maximizing output.
In this in this third quarter, even with some of the yield challenges. We had early in the early in the quarter, we were still able to exceed our forecast in terms of of our output.
And.
So therefore feeding into you know, obviously, providing more products to our customer as we look at the fourth quarter.
As with last year, I think I think in the and the the world that we live in today I think it's wise for our customer base to be conservative and forecasting.
And to manage inventories carefully.
So we were looking at more of what I would call what looks to be a real.
Real demand kind of requirements and ultimately, we'll see how the sell through.
What the sell through looks like.
When when we get revised forecast in December .
That is normal right. So what we're seeing is really a second quarter in a row, where at the end.
We ended the third quarter, we're seeing a forecast it looks like it's yeah.
More conservative were down from the third quarter.
But then ultimately it's that sell through.
Mid December input that we'll be looking to determine how are we really doing in the end that cycle and that will feed into the end of December sales and then into Q1.
And hopefully entered Q2.
So that's where that's really where we stand well so hard to say that this is a you know it's going to go on next year or not but I do think where it's a second year in a row, where we have this data point that just points to a slightly more careful for forecasting in the fourth quarter.
Thank you.
Thank you.
Next question.
From Jim Ricchiuti with Needham and company.
Hi, Thank you good afternoon, a question on the automotive market and I'm wondering if you could talk about the PCB portion as it related to what you are seeing Jude graphically was it was it fairly broad based the softness that you saw.
Thank you Jim.
So yeah, if you look at and automotive overall and what we saw on in.
In the quarter.
And if you think about it I'll give more sequential and year on year, because I think it's more instructive.
We we have in Asia, we saw.
Bit of an improvement in Asia in.
And in Europe , still pretty much bouncing along the bottom and then.
Weakness in a more weakness in North America.
Then we had seen before so quarter on quarter more down in North America.
The way I interpret that a is that you know we did the diesel.
The diesel impact on our business.
Continues in Europe .
We started its sort of the impact has been felt and we're now bouncing along the bottom.
Thank you know and the age that it's good just started seeing some gradual improvement, particularly in China.
Hard to call that a trend is yet.
But it's good it's a positive indication I think in the U.S.. We're just seeing this fall and as customer you know as our customers are experiencing some of the U.S. auto softness now and and so that's sort of your geographic.
Picture.
Oh, Yes corridor.
Yeah sure thing fourth quarter were expecting sort of more of the same I'd say it are you seeing Tommy you did you.
Seeing any or have you seen any disruption as it related to.
The recent G.M. strike.
Well.
So so always hard for us to tell because were generally selling into.
Into tier one parts suppliers right and so.
We ship into a hub inventory and then and then we see experienced the pool that could be part of what we what we saw in the U.S. This last quarter, it's but its but it's difficult to its difficult itself.
Okay, and not to try to pin you down beyond Q4, but is there anything in that you're seeing in the automotive more.
Suggests that they there do some change in the environment for you.
In the early part of 2020.
I would say 2020, I think it's still going to be a challenging year and really a year of of ongoing transition.
Particularly in China, and Europe , as those markets really push towards E D adoption.
Long term, that's a terrific thing for TTM content content more than doubles.
On average with an electric vehicle. So that's terrific, but this transition in terms of unit sales, which is I think going to be is going to continue to be challenging you asked a little bit harder to call. It I think it's more tied to what happens with the macro economy and the U.S., but.
What I can say, Jim as you know certainly in regards to the Asia, China market Europe market European market. It is good to see a little bit of improvement and in Asia and to see Europe sort of steady now at a at a lower a very honestly I'm satisfactory level, but at least stabilized so.
You know, it's it's that that's that's a good side I'd just say that overall for next year I don't I think we're going to continue to see this this market be challenging.
As we go through that transition.
Got it thanks a lot.
Thanks, Doug.
Thank you and once again, if you would like to ask a question. Please press star one well take our next question from Mike Crawford with B.B. Riley.
[laughter] thinks you talked about inventories bleeding off, particularly relative to Fiveg, where maybe some of the build got ahead of demand expanding from the first adopters, but have you seen any changes recently in lead times that could indicate that any of that correction is going to have happened we might see.
More of a run rate demand situation, starting in Q1 or two to next year.
Thank you Mike Yeah, I think on on that so again.
We're it's it's different based on our <unk> based on customer forecasts more than anything else I would say that there are that they're going to be there, there's certainly a leading on being being conservative.
Thank you seen that with a couple of the public announcements as well I think they're looking at a at real real demand starting towards the latter half of next year, we'll see what that means in terms of equipment build and whether that whether they've met forward or not.
But I think yeah at least at least for for a couple of quarters here, we're expecting that that that inventory.
They'll still be working off that inventory.
Okay. Thanks, and then just on your footprint it sounds like in the U.S. with you know even bottlenecks, you're you're fine I'm, certainly I think you'd get up right down to 50% utilization, but in Asia.
Thank you probably you're about to be closer to you know 80% versus.
You know, 71% in a peak quarter have you is it if what how far lower would utilization up to slip say in Asia. Before you started to think about maybe consulting footprint there.
Right, Yeah, so so you're you're absolutely right in a peak quarter.
We we really in Asia, we prefer to be operating on the 85% or both.
Terry.
Right.
And so from that standpoint, where you know this this is a it's a concern it's concerning number to be at that 71%.
Remember that this is based on equipment that we have installed so we might have played in compared is based on.
Seating capacity, which is the core process.
And so we may have equipment, that's sitting in a facility that's not that's not operating but we would still call that capacity if you will.
So that's the basis for the calculation.
And so what you're really talking about as you know what point when would it make sense for us to actually close a facility and as we've looked at our markets in it.
Let me just talk a little bit about you know what we see longer term here, but as we look longer term at our markets, we're seeing it still seeing.
With five G calming not only of course, a a pick up towards the second half of next year and networking communications, but we're seeing the were the impacts of Fiveg, which we expected to be felt in the cellular phone side, we expect that to be felt on the internet of things and the.
Medical and industrial side of our business, we expect the data requirements to be felt in our in the computing side of our business and we're already seeing.
The strength, returning on semiconductor and semiconductor capital equipment.
Which when credence to that.
They're now bringing in capabilities that will be required.
Oh, Gee semiconductor side, and they're adding capacity in anticipation of that.
So again that suits basin, but we're going to be careful in terms of how we manage our footprint.
We will continue we will.
Continue to cut costs from a labor standpoint, but we'll be very careful about managing the charters of our facilities and how they tie into those end markets.
<unk>.
Because that you know that return of the business is a cost could come off.
Awfully quickly.
Okay. Thank you and then last question.
<unk> point, you made about data and your data center customers where.
And in your General remarks, you talked about that being a little soft, but then Conversely, I think a them in the last call you talked about the visibility improving in that sector and then I'll see you know, what's coming with the Fiveg and able to update on a need to be stored so has anything changed there regarding the facility.
We are not yeah. Its excellent question.
So what what has what has changed is just the stickiness with ramp.
A little bit a little bit of other less steep Robinson, then certainly we anticipate.
But but we're still looking at that.
Hey, l. ramp occurring here.
As we certainly as we go into the queue wants you to next year and.
That's a that's good to see me, but long period of digestion.
Here is as a as our customers designed a new equipment.
Platforms and and.
It's hard work.
[laughter].
Required.
Just.
I would say that the difference is the steepness never happened and Oh and that.
Has caused.
The.
Our demand to shift a little bit to the right.
Okay, great well thank you.
Thank you.
Thank you.
No further questions at this time I'll now turn the conference back to Mr., Tom Edman for closing remarks.
Thank you and I'd like to thank you all for attending just to summarize some of the points. We made earlier first we delivered earnings within the guided range, we generated solid cash flow or just basically operating.
Challenges that we covered.
Second we're taking a tough demand environment and some of our commercial end markets. We continue to execute well on our core strategies of diversification differentiation and discipline and finally I'd like to thank you.
Our investors.
Our employees and of course, our customers for your continued support thank you.
Thank you, ladies and gentlemen, thanks.
We thank you for your attendance in participation you may now disconnect.