Q1 2021 Benchmark Electronics Inc Earnings Call
[music].
Good afternoon, and welcome to the benchmark electronics first quarter 2021 earnings conference call.
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I'd now like to turn the conference over to Lisa weeks Senior Vice President of strategy and Investor Relations. Please go ahead.
Thank you operator, and thanks, everyone for joining us today for benchmark first quarter 2021 earnings call. Joining me. This afternoon are Jeff Zhang CEO, and president and roof block of Rajiv CFO.
After the market closed today, we issued an earnings release, highlighting our financial performance for the first quarter of 2021, and we have prepared a presentation that we will reference on this call.
The press release and presentation are available online under the Investor Relations section of our website at Www Dot bench Dot Com. This call is being webcast line and a replay will be available online following the call.
The company has provided a reconciliation of our GAAP to non-GAAP measures in the earnings release as well as in the appendix of the earnings presentation.
Please take a moment to review the forward looking statements advice on slide two in the presentation.
During our call we will discuss forward looking information as a reminder, any of today's remarks that are not statements of historical facts are forward looking statements, which involve risks and uncertainties as described in our press releases and SEC filings.
<unk> results may differ materially from these statements most notably from the ongoing impact of the COVID-19, pandemic and benchmark undertakes no obligation to update any forward looking statements for.
Today's call, Jeff will begin by covering a summary of our first quarter results, including New program wins Roop will then discuss our detailed first quarter results, including a cash and balance sheet summary, and second quarter 2021 guidance.
Jeff will wrap up with an outlook by market sector and progress to date on our strategic initiatives, including ESG and sustainability, we will conclude the call today with Q&A. If you would please turn to slide three I will now turn the call over to our CEO, Jeff Burbank.
Thank you Lisa.
Good afternoon, and thanks to everyone for joining our call today.
Overall, we delivered a solid start to 2021, our first quarter results reinforce our commitment to executing the strategy, we have laid out and continuing to demonstrate operational excellence.
In Q1 revenues of 500 of $6 million were above the midpoint of our guidance for the quarter led by continued global strength in our semi cap sector, which grew 37% year over year.
Our non-GAAP gross margins of eight 3% non-GAAP operating margins of two 3% and earnings per share of 21 cents were all in line with our forecast guidance.
We had another strong quarter of working capital results as the cash conversion cycle was 65 days, which enabled 37 million of operating cash flow and $30 million of free cash flow for the quarter.
Despite some significant disruptions due to COVID-19 that temporarily shut down two of our facilities in Malaysia. Our teams did an amazing job of caring for our people recovering in the quarter and delivering for our customers.
Our leadership and COVID-19 Task force.
To navigate our organization through the challenges of the pandemic and we are taking actions to encourage vaccinations across our employee population.
First here in the U S and in other countries as the vaccine is available.
I'm really proud of our team around the world, who continue to deliver solid results while successfully navigating COVID-19.
Please turn to slide four.
In addition of positive results, we had another strong quarter of bookings for the outsourcing of new deal opportunity environment remains strong even in the pandemic.
Our pipeline continues to grow and our trailing four quarter wins of over $800 million.
<unk> is a new record for our organization.
Now I'd like to highlight a few key wins in the quarter.
In the medical sector, we were awarded new manufacturing programs for insulin infusion pumps of bacterial diagnostic instrument and of mobile MRI device.
In the A&D sector, we were awarded new programs for RF satellite control of electronics and.
Advanced optical manufacturing for night vision applications and of precision machining program for of military applications.
We are excited to further expand our world class machining capabilities into the A&D sector.
In industrials I wanted to highlight two customer case studies the.
The first is with our customer ouster, a leading provider of high resolution digital lidar sensors used in industrial automation smart infrastructure for robotics and automotive applications.
And our Thailand facility, we are providing complex microelectronics optics and printed circuit board assemblies for Alister.
After completion of certifications in 2019, we are now scaling capacity to meet full volume production.
Our team has done an outstanding job meeting the rigorous quality requirements to bring these programs to market and we look forward as fulfillment volume demands in support of aster in the coming years.
Okay.
The second is with our new customer Geophysical Technology, Inc.
Which utilize the seismic systems for measuring the earth subsurface for resource extraction, Hertz quake monitoring construction and hydro of thermal projects.
Benchmark was selected based on our strong of reputation for quality and reliability and to assist the near shoring manufacturing to North America for the next generation of products.
We're excited to be Gti's manufacturing partner.
In computing and telco, we were awarded design services for a new hyperscale competing product and manufacturing services for new broadband product.
Our new business pipeline remains strong across all of our sectors and we expect to grow bookings year over year.
Now I will turn the call over to Ruth to discuss the first quarter financial results.
Over to you.
Thank you, Jeff and good afternoon, please turn to slide six for our revenue by market sector total.
The benchmark revenue was $506 million in Q1, which was slightly above the midpoint of our guidance as expected the.
<unk> revenues, primarily from A&D for up partially offset by increases in semi cap and telecom met.
Medical revenues for the first quarter were relatively flat sequentially from continued lower demand for products involved in COVID-19 therapies and softer demand related to the cardio care and other elective surgery devices.
As Jeff will comment later, we do expect an uptick in the second half from new programs.
Semi cap revenues were up 12% in the first quarter net up 37% year over year from continued demand strength from our wafer fab equipment customers for continuing to boost capacity to support greater chip output.
As a reminder, we provide primarily non electronic precision machining and electromechanical assembly to these customers.
A&D revenues for the first quarter decreased 19% sequentially from further deterioration in demand from our commercial aerospace customers with no signs of demand recovery in the near future.
As a reminder, revenues for commercial aerospace customers was approximately 25% of our 2020 A&D sector revenue.
Industrial revenues for the first quarter were slightly down from continued softness in oil and gas infrastructure, primarily building in transportation and new program ramp delays.
Overall, the higher value markets represented 80% of our first quarter revenue.
Revenues from computing and telco sectors, our traditional market was flat quarter over quarter.
Revenue increases in testing products were offset by continued softness in commercial satellite programs.
Our traditional markets represented 20% of first quarter revenue, our top 10 customers represented 44% of sales in the first quarter.
Turning to slide seven.
Our GAAP earnings per share for the quarter was 22 or.
Our GAAP results included restructuring and other onetime costs totaling $1 6 million related to reductions in force and other restructuring activities around our network of sites $3 4 million of insurance recovery.
For Q1, our non-GAAP gross margin was eight 3%. This is 10 basis points better than the midpoint of our Q1, 'twenty, one guidance and 10 basis points less than our year over year comparison.
Chad stronger higher value market mix.
The sequential basis, we were lower by 130 basis points as of.
Result of our lower revenue reduced absorption higher discrete medical claims activity and higher variable compensation.
Our SG&A was $30 5 million a decrease of $1 9 million sequentially due to lower variable compensation costs.
Non-GAAP operating margin was two 3%.
In Q1 2021, our non-GAAP effective tax rate was 16, 9% as the result of the mix of profit between the U S and foreign jurisdictions.
Non-GAAP EPS was <unk> 21 for the quarter, which was a penny higher than the midpoint of our Q1 guidance and non-GAAP ROIC was six 4%.
Turning to slide eight to review of our cash conversion cycle performance.
Our cash conversion cycle days were 65 in the first quarter, an improvement of six days from the fourth quarter from the timing of inventory receipts shipments to customers and collections within the quarter.
Turning to slide nine for an update on liquidity and capital resources.
Our cash balance was 400 million at March 31, with the $153 million available in the U S.
Our cash balances grew $4 million sequentially because of our strong cash conversion cycle performance, even while we have invested in inventory for future rents.
We generated $37 million of cash flow from operations in Q1, and our free cash flow was $30 million.
At March 31, we had 135 million outstanding on our term loan with no borrowings outstanding on our available revolver.
Turning to slide 10 to review our capital allocation activity.
In Q1, we paid cash dividends of $5 8 million and used $13 1 million to repurchase 441600 chairs.
As of March 31, we had approximately of $191 million remaining in our existing share repurchase authorization in Q2, we expect the repurchase shares opportunistically, while considering market conditions.
Please turn to slide 11 for a review of our second quarter 2021 guidance.
We expect revenue to range from $515 million to $555 million, which at the midpoint represents a 9% year over year improvement.
We expect that our gross margins will be eight 5% to eight 7% for Q2, and SG&A will range between 31% and $32 million the.
The sequential increase in gross margin is expected due to higher revenues and improved the absorption we still expect gross margins for the full year to be at least 9%.
Implied in our guidance is a two 5% to two 9% non-GAAP operating margin range for modeling purposes.
The guidance provided does exclude the impact of amortization of intangible assets and estimated restructuring and other costs, we expect to incur restructuring and other nonrecurring costs in Q2 of approximately 800000 to $1 2 million.
Our non-GAAP diluted earnings per share is expected to be in the range of 23 to 29 for.
For a midpoint of 26.
Based on the strength of new bookings execution of new program ramps and continued growth in our semi cap sector. We are increasing our capex plans for the year to be between $50 million to $60 million.
We estimate that we will generate approximately $80 million to $100 million of cash flow from operations for the fiscal year 2021. This.
This range contemplates increased working capital investments in inventory to support growth for our customers through the year.
Other expenses net is expected to be $2 5 million, which is primarily interest expense related to our outstanding debt.
We expect that for Q2 of our non-GAAP effective tax rate will be between 19% and 21%.
Because of the distribution of income around our global network. The expected weighted average shares for Q2 or $36 5 million.
Before I turn the call back over to Jeff I wanted to comment on our perspective on the components of flight as Youre aware of the overall demand environment is gaining strength from the macroeconomic recovery, which has outpaced the electronic component supply.
Lead times are extending as more components are going on allocation primarily in semiconductors.
We are maintaining close alignment with our suppliers and distributors to minimize disruption of existing orders and working to secure supply to support customer demand increases.
In some cases, we are actively working with customers to replant mix and redesign some products to enable all of alternate component sourcing. These.
These actions will give us confidence that we will grow revenue in 2021.
In summary, our guidance takes into consideration all known constraints for the quarter and assumes no further significant interruptions to our supply base operations for our customers.
Guidance also assumes no material changes to the end market conditions due to COVID-19.
And with that I'll turn the call back over to you Jeff.
Thanks for for that update.
Following <unk> comments on our second quarter guidance I wanted to provide some additional color on our view of demand by sector for the remainder of 2021. This is on slide 13.
For the second quarter, we expect revenue to be up sequentially of by about $30 million. This strength is led by expected sequential growth in semi cap.
And computing.
Incentive kept the demand outlook continues to build for semiconductor capital equipment and the strengthening of the strengthening in Q2 over our Q1 results the strong demand for semiconductors due to the accelerating pace of digital transformation is fueling this growth and we remain well positioned with the industry leaders in the sector.
We believe this wafer fab equipment growth cycle has the potential the continued for several years not only due to the current severe semiconductor shortages, but also driven by government investment to address concerns about supply chain security and overall competitiveness.
With this current demand strength and signals from our customers. We are revising our outlook for this sector upward from 10% growth to greater than 20% of revenue growth over 2020 levels.
In A&D growth in the second quarter is led by increased demand for defense related communications radar and security products.
Growth is expected in Q2, even though demand for commercial aerospace programs.
Which was about 25% of the sector demand in 2020 continues to deteriorate.
As such we expect the A&D sector will still be flat for 2021.
In the computing sector, we expect strong revenue growth in 2021 from high performance computing projects with expected ramp starting in Q2 and continuing through second half 2021.
In the medical sector, we're expecting revenue to remain relatively flat in the first half as elective surgery and demand for cardiac related products have not yet returned to pre pandemic levels.
We are receiving some early indications from our customers that elective surgery demand is strengthening and this coupled with the number of new program ramps starting in Q3 point to stronger medical sector growth in the second half of this year.
We expect 2021 will be another growth year for the medical sector.
In the telco market, where we remain highly selective in our engagements.
Overall demand is stable in Q2 and is it proving through second half 'twenty, one from broadband infrastructure product growth.
In industrials, we've yet to see significant demand recovery in our oil and gas and are building and transportation infrastructure customers. We.
We're excited about a tremendous number of new program ramps in the industrial space.
Many of these programs of new designs and technologically advanced programs and as such we are experiencing some program delays.
Based on these dynamics, we believe industrials will now be flat for the year.
Yeah.
If you'll turn to slide 14.
Wanted to provide further updates on our ESG and sustainability efforts.
Since the February call. Our ESG console has successfully work to deliver our first SaaS. The fact sheet, which can be found on the sustainability page of our website.
This document of highlights of our current performance against the technical requirements for the E&S ODM industry within the SaaS B framework.
The objective of releasing this factsheet is to provide continued transparency as we further enhance our performance within the framework of our five key ESG tenants.
Beyond the FASB report, we have also provided further updates on our progress in both our most recent annual report and proxy.
At the benchmark, we value diversity and expect our leaders to embrace all people, regardless of gender race class or Creed.
Recognizing that greater inclusion fosters better decision, making and increased innovation.
We are strengthening our diversity equity and inclusion programs through a plan set of actions around training policies and through a revitalized recruiting strategy.
As such we have engaged a consultant who is leading a day perception.
The study to establish a framework for how we listen learn and act to achieve our goals.
We are very proud to have been awarded of 2021 silver metal from Echo Bottas and recognition of our sustainability progress.
<unk> is one of the world's most trusted providers of business sustainability ratings and their assessment of covers a broad range of non financial management systems, including environmental labor and human rights ethics and sustainable procurement.
This recognition puts us in the top 25% of companies rated.
Looking ahead, we have started both quantitative and qualitative data collection to align reporting to the global reporting initiative for <unk> standards.
As we've announced previously we are committed partner with applied materials and other strategic customers as part of the electronics supply chain ecosystem.
There is tremendous momentum of benchmark surrounding ESG and sustainability and I look forward to providing further updates as we continue our journey.
I now want to wrap up the call today with the summary of our progress towards our three strategic initiatives for 2021 on slide 15.
Growing revenue is the top priority of benchmark.
Through the efforts of the entire benchmark organization and led by our go to market team. We are continuing to see strong new bookings, both with existing accounts and targeted new customers with innovative products aligned to our sector strategies.
We are very focused on helping our customers accelerate their time to market for.
Providing more of the complete solution, which includes both engineering and manufacturing services.
This is reflected in our increased attach rate of design engagements to manufacturing wins and vice versa.
To that point in Q1 about 50% of our new wins have an engineering component.
Our differentiated offerings and supported the semi cap market and our new program wins have enabled significant growth in the semi cap vertical.
Which we expect will now grow over 20% this year.
This strength, coupled with new programs and high performance computing in mid 2021, and additional new program ramps in the higher value markets gives us confidence that we can achieve greater than 5% growth in 2021.
And of course to support our long term growth and scale of objectives. We must also invest in sustainable infrastructure and talent.
Needed to support our long term business.
As I discussed earlier, ESG and sustainability initiatives and.
And advancing diversity and inclusion underpinned the foundational imperative.
But they are not our only areas of investment as we are also investing in tools processes and manufacturing assets to drive further operational effectiveness.
As we evaluate how to best serve our customers, including exploring advances in technology. We are also contemplating incremental capital investments aligned to our strategy as roop referenced earlier.
Even though we continue to invest in our business. We are committed to driving an efficient shared services organization and continuing our focus on expense management to maintain our SG&A spend at or below 6% of revenue.
Finally, we expect to grow earnings faster than revenue.
Our model is predicated on revenue growth that enables higher utilization to better leverage our fixed cost.
With revenue growth from increasing demand of new ramps, we still expect to achieve 9% gross margin for the full year gear.
Given the current supply chain environment, we do expect inventory growth in support of securing component supply for our customers.
While we are still forecasting cash flows from operations for the full year between 80 and $100 million.
And supportive of efficient use of capital and returning value to our shareholders. We plan to continue buybacks and our recurring dividend.
All in all of 2021 is off to a good start I remain energized and excited about our capabilities and the progress we are making in developing our strategic customer relationships.
Want to express my continued thanks to our hard working and valuable employees and our suppliers for their incredible support.
I look forward to providing further updates on our call in July.
And with that I'll turn the call over to the operator to conduct the Q&A.
Operator.
We will now begin the question and answer session.
The ask a question you May press Star then one of them on your telephone keypad.
Youre using a speakerphone please pick up your handset before pressing the key.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
And our first question will come from Jason Smith of Lake Street. Please go ahead.
Hey, guys. Thanks for taking my questions just wanted to start with your comments on the shutdown of the Malaysian facilities could you quantify the revenue impact that had in Q1.
Yes.
The team did an amazing job, Jason we did have a significant.
The significant enough impact from COVID-19 that we ended up.
Really halting operations for.
For about 10 days and tour of our facilities there.
But the team by working weekends and overtime did a really quite amazing job in recovering in the quarter. So I would say really the impact from that shutdown was somewhat de minimis I mean, it really was not a not something that would stand out.
And really a testament to the team just work in the last two or three weeks of the quarter when they got back fully operational and and they did a really nice job of recovering.
Okay. That's helpful. And then just as a follow up I know Q1 is always a bit different different because of Chinese new year, and obviously the macro remains a bit fluid, but could you just discuss how order patterns in the bookings trended in Q1.
I mean, I think it was not all of that different than what we've seen in prior quarters. Because like you said there are some things that are different in Q1, as we start of new year.
We don't always experienced a ton of seasonality but.
I think as the quarter progressed, we we certainly have seen customers come in and start to talk about increase in demand not necessarily all of it in quarter, we talked a little bit of in the commentary that we see indications that second half looks looks to be stronger than first.
Half.
But.
I think things played out pretty in line with our expectations.
We did have.
Some of some demand that we weren't able to fulfill in the quarter.
Given some of the tightness in supply and and.
We can talk more about that but but all in all I think.
I think the order load was pretty pretty consistent.
Okay, perfect I'll jump back into queue. Thank you.
Sure.
Thanks for your question.
The next question comes from Joseph of.
Sidoti. Please go ahead.
Hi, Jeff and Reuben Lisa and thank you for taking my question.
So if you could just elaborate a little bit on the supply chain challenges you have what kind of visibility do you have there for the rest of the quarter.
He also said it puts a little bit though limitations on any upside demand within the quarter is standard way.
You can navigate that in the coming quarters.
Yeah, Yeah. This is grupo.
Maybe start with the couple of comments I think to your last question first can we navigated I think we have the ability to navigate it with that said I mean, it is of constrained market. It's not just semiconductors, it really cuts across all commodities, but our teams are working hard at mitigating.
The risks associated with it and providing continuity of supply, but that means partnering with our customers and the supply chain environment. If I think about demand. It's strong it's a strong demand environment across most of our sub sectors and with that in mind when we look at.
How we might execute through Q2, we're obviously.
Sequentially guiding up which tells you the strength that we see with that said could we have some unfulfilled demand in the quarter, that's a possibility and it could be to the tune of 30 to 50 million of potentially but that's not lost demand that demand pushes to the right.
And it will be fulfilled in the second half of 'twenty, one we believe.
Might just add to that <unk> commentary when he talks about the potential for further unfulfilled demand.
That's up and above our guidance range. So that's that's not factored in and that's not necessarily of risk to what we're.
Putting out of the forecast here.
But it is the tough environment, you've got increased demand as the economic recovery continues but then at the same time, we've got the component constraints. So we're working closely with our customers per se as you guys see it.
We need to be working very closely together to plan for that to ensure that we can get the.
The needed supply to do that so we're fortunate that.
We participated in some segments that are that are not as dependent on components. You would think about our semi cap business, which is up a lot and we look for that to be stronger this year than planned.
Not near as component sensitive right in fact, if anything where we're helping build the capital equipment with our customer partners that ultimately will help the the industry produce more semiconductors. So we're actually part of that solution, but but that's an area of for example of this not near as sensitive to the tightening supply of components.
But it's an issue the whole industry is dealing with them and we're not we're certainly not immune to it but we think we've done a good job navigating to kind of stay vigilant.
On it.
Okay. So hopefully as soon as you part of the solution you a little bit for Tyson and the line for components, but yes.
In terms of the the visibility for the quarter and the guidance that that's.
The supply demand sort of apply need is accounted for by traditional risks to your guidance is just in case there is on the upside.
Yes, that's what I was.
To reiterate was the fact that our our guidance actually takes into account our line of sights of supply barring any thing that comes up unexpectedly, but but we obviously do a lot of work to align what sorts of suppliers. We just the reason that we're sharing that demand is very strong and we're just sharing the fact that it's stronger.
Then what we're likely to be able to close because some of thats within lead time as you have.
Of demand shifting.
We could in the normal environment could we have done even more of that that potential there.
It is not keeping us from growing though.
We're still able to grow our business, but ultimately.
Wed like to resolve all of it and as we close.
<unk> that's the parts, we'll look to drive more revenue of course, the and we want to fulfill any demand or customers.
Have the ability to sell.
Okay. Thank you for that additional information and in terms of the end markets.
You talked about the the elective medical coming back from do you see there.
Is that trending.
Well, we kind of we've watched what others have said in the space to we.
We have seen that our medical the kind of in the first half has been flatter than when we had a lot of growth last year, but we do see signals of the elective surgery demand picking up we also participate quite a bit in cardiac products and diagnostic products and some of that.
Starting to see early signs I would say not as much in the second quarter, but as we look at some forecast for the third quarter and fourth quarter.
It looks like there's the we should see nice growth from first half of second half of our medical business, which is kind of leading us to continue to show that is green in terms of strong growth and in the full year. It's just as you look in the second quarter, we're not seeing quite the uptake yet most of the that demand those demand signals of appointing the second.
And then also it's probably further.
Influenced by way of some new products that are ramping that also.
We really look to ramp in third quarter and beyond so some of the new medical wins, we had over the last 18 months of.
Starting to kick in but that's really more of the second half of that for us. So that's kind of how we think about medical right now.
Okay. Thank you and I think you mentioned that you increased the capex guidance for the year right.
We did on yet.
We moved it up to $50 million to $60 million.
And what's driving that is there any sort of expansion. So it is just machinery sir.
So it really is in support of the.
The bookings environment and the strength of the bookings that we've had and the revenue strength of the ramps and then on top of that semi cap continuing.
To improve and we talk about Q2 strengthening over Q1, yes, just putting additional.
Capacity in support of the demand that we see in the semi cap in the out quarters.
Semi cap is interest hang on.
Is that the cap is interesting because we started in the fall of saying, we saw 5% 6% growth in 'twenty one than last quarter, we said, 10% growth our adjusted net to 20%. So clearly semi cap has continued to be very strong and strengthening as.
As we've gone forward.
Yeah, Yeah and.
Also of how should we think about the gross margin.
Given them the computing.
That is going to be of a stronger and that's part of the traditional market swedbank.
The is that still act.
You sort of average.
The gross margin or is that going to affect your margins.
Yes, I think yes.
The mix is always.
It is important to us in terms of our portfolio of revenue.
Thing to reiterate as we mentioned in our comments that the full year, we expect to be at 9% gross margin. So what that really means is you can expect the sequential improvement in the gross margin.
It will be mixed the pellet and so compute will offset which has lower gross margins in comparisons of semi cap, let's say, so you see that kind of balancing out between the two if you will for a certain extent, but overall as we continue to execute through the year and with the revenue growth that we spoke of we expect gross margins to add.
Average out to around 9% for the year at least.
Okay, Great and then just one last question, if kind of mind and the more challenging.
Are you asking me the commercial Erin.
Oil and gas and the industrial flow.
What do you expect there.
Well the.
I'd like to say aerospace commercial aerospace is going to recover but we don't see it yet and we're saying for 'twenty, one we're not anticipating that.
Obviously, we're watching some of the aircraft manufacturers of announcements.
We know people are starting to fly again, so, but we also know international.
Is nonexistent travel right now is pretty pretty low so we're not seeing an improvement in aerospace.
As you know we are 75, we were 70 30 now we're about 75% defense, 25% commercial aerospace so while it's down even in this year because if you remember March quarter last year Aerospace was holding up still for the pre COVID-19, but now we've got the full year and wrap.
Around of aerospace being down in and frankly has softened so that's hurting the.
A&D segment for us, but our defense business is very strong in and it's actually driving a little bit of sequential growth in <unk>. So that's kind of helping us in net in that segment on industrial.
Oil and gas, we again net scenario, where we have not seen a recovery at this point, we sort of believe in second half as we get to the back end of the year that that that that segment will will come back.
Our industrial business is pretty diversified, but there are some other areas like some of the infrastructure space that that is also.
Still really hasnt fully recovered for us.
We believe that we did shift a little bit of our thoughts on industrial to say it would be flatter this year than what you might have initially projected because we had a number of new ramps in that segment with new customers that were frankly, very technology complex and new to.
And not due to any fault of our own some of those programs of moved to the right just because it's taken longer to get the product completely designed and ready to go and volume manufacturing so still feel good about our position in industrial but the.
The the growth we had thought we might see in 'twenty, one we're sort of now, saying, it's more likely to be to be flatter.
Sorry, one last question.
A lot of talk about the interest et cetera.
For yourself.
And impacted from the new administration of potential new package there.
Well I think.
We typically get the question about like defense budget, and what will happen there.
We work on military modernization. So we absolutely believe that regardless of the office that we're going to see continued.
Support of defense you see the the.
Challenges we have.
Where.
We got to keep our military competitive in the world.
In terms of infrastructure.
If it comes the roads and highways, maybe not as director of the impact to US right. We're not.
The participated as much in that segment.
But the the.
We are really encouraged about the big.
Big investment that the.
And the <unk> package related to send the capital semi cap equipment in and foundries and very close to home here in Phoenix, where we're headquartered Intel and TSMC both.
Said that they would open additional multibillion dollar foundries.
Here in Phoenix, the Phoenix Metro area. So the fact that we.
That we support of number of capital equipment players in that segment.
As we talked a little bit of the remarks, that's probably why we think that that may be a longer secular growth story than than maybe the typical two to three year cycle because of the heavy investment for the U S to say, we're going to we're going to do more to incentivize domestic semiconductor production and to build those foundries.
Requires the sophisticated complex equipment that we help develop and build so we think that that could be very very good for us into 'twenty two and beyond.
Okay. Thank you very much that's all from me.
Thanks, Tony Thanks.
Our next question is a follow up from Jason Smith of Lake Street. Please go ahead.
Hey, just two quick follow up questions on the semi cap market sort of this.
Incremental let's call it $37 million and the revenue you now expect based on sort of the updated guidance is that being driven by a number of different customers or is it concentrated in a few specific customers your programs.
It's a couple of customers.
A couple of large customers in the semi kind of space, but it's not all semi cap. We also see strengthen.
Starting the ramp in some of the high performance computing large platforms, we're working on that that happens to be a large customer there. We also saw some.
Some of the defense sort of sequentially up in and some projects there which is multiple customers. So it's not really based in one customer semi cap is fairly concentrated for us though in.
No.
The Ah.
A number of large capital equipment players, but the second quarter up is it's more broader than just semi capped don't want to leave you with the thats all semi cap driven.
Okay. No. That's really helpful. And then just lastly that 50% attach rate number for engineering to manufacturing services seems really impressive is that sort of the range that you'd like to maintain going forward or what sort of is the long term target.
That's a great question.
Great question, because we've talked a lot about that we we we of how we sort of said we want to at least half of the opportunities to involve engineering services and we had been somewhat below that last year, we haven't published it every quarter, but but we would like to be at that level there'll be some of the.
The Downes's bookings happened you know, sometimes the they don't always line up but the other thing going on is that.
As some of the engineering firms working on are leading the manufacturing wins and so it's not all of Hey, we win the manufacturing and then can we help of engineering of many times now we're being asked to develop the product and the ultimately build it. So we definitely see it go in both directions, but we really are tracking this closely and it's probably of why we.
Specifically called it out because we're looking at every quarter as to are we or are we getting engineering attach rate because we want to we want to sell of Richard's suite of services. We know we can do more we know the engineering services tends to be a little bit higher margin than the EMS world. So it's a good thing for us and helps us with the growth from gross.
But yes.
Yes, we would we would like to continue to build on that and be north of that 50%.
Going forward.
Okay I appreciate the color. Thanks again guys.
Demonstrating for you.
Yeah.
This concludes our question and answer session I would like to turn the conference back in front of Lisa weeks for any closing remarks.
Thank you again for joining our call today, if you have any follow up questions regarding our earnings release, please don't hesitate to reach out and I'll be happy to follow up.
Also wanted to put in a quick reminder, that benchmark will be supporting the Needham virtual Tech and media conference on May 18, and the Stifel Cross site insight conference on June nine we look for.
Forward to engaging with you at these events.
With that please have a good afternoon, we look forward to sharing our second quarter results with you in our July earnings call. Thank you.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.