Q2 2024 Sanmina Corp Earnings Call
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Operator: Good afternoon, ladies and gentlemen, and welcome to Sanmina's second quarter fiscal 2024 earnings conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for a question. If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time. I would now like to turn the conference over to Paige Melching. Please go ahead.
Speaker Change: Good afternoon, ladies and gentlemen, and welcome to city Munis second quarter fiscal 2024 earnings conference call. At this time all lines are in English and only mode. Following the presentation, we will conduct a question and answer session.
Speaker Change: Instructions will be provided at that time for you to get up for a question.
Paige Melching: Anyone has any difficulties hearing the conference. Please press star zero for operator assistance at any time I would now like to try to conference over to page marching. Please go ahead.
Paige Melching: Thank you, Jenny. Good afternoon, ladies and gentlemen, and welcome to Sanmina's second quarter fiscal year 2024 earnings call. A copy of our press release and slides for today's discussion are available on our website at sanmina.com in the investor relations section. Joining me on today's call is Jure Sola, Chairman and Chief Executive Officer. Good afternoon. And Jon Faust, Executive Vice President and Chief Financial Officer. Good
Paige Melching: Thank you Jenny good afternoon, ladies and gentlemen, and welcome to Sanmina second quarter fiscal year 2024 earnings call a copy of our press release and slides for today's discussion are available on our website at Sanmina Dot com in the Investor Relations section joining.
Page: Joining me on today's call is Youri, Sola, Chairman and Chief Executive Officer, Good afternoon, and John <unk> Executive Vice President and Chief Financial Officer. Good afternoon.
Paige Melching: Before I turn the call over to Jure, let me remind everyone that today's call is being webcast and recorded and will be available on our website. You can follow along with our prepared remarks in the slides provided on our website. Please turn to slide three of our presentation and take note of our 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.
Page: Before I turn the call over to Gerry Let me remind everyone that today's call is being webcast and recorded and will be available on our website you can follow along with our prepared remarks and the slides provided on our website.
Page: Please turn to slide three of our presentation and take note of our Safe Harbor statement during.
Gerry: 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 could differ materially from those projected in these statements as a result of factors set forth in the safe Harbor statement.
Paige Melching: The company's actual results could differ materially from those projected in these statements as a result of factors set forth in the Safe Harbor Statement. The company is under no obligation and expressly disclaims any such obligation to update or alter any of the forward-looking statements made in this earnings release, the earnings presentation, the conference call, or the investor relations section of our website, whether as a result of new information, future events, or otherwise, unless otherwise required by law.
Gerry: The company is under no obligation and expressly disclaims any such obligation to update or alter any of the forward looking statements made in this earnings release the earnings presentation. The conference call or the Investor Relations section of our website, whether as a result of new information future events or otherwise unless otherwise required by law.
Gerry: Sure.
Paige Melching: In our press release and slides issued today, we have provided you with statements of operations for the second quarter ended March 30, 2024, on a GAAP basis, as well as certain non-GAAP financial information. A reconciliation between GAAP and non-GAAP financial information is also provided in the press release and slides posted on our website. In general, our non-GAAP financial information excludes restructuring costs, acquisition and integration costs, non-cash stock-based compensation expense, amortization expense, and other unusual or infrequent items.
Gerry: Included in our press release and slides issued today, we have provided you with statements of operations for the second quarter ended March 30th 2024 on a GAAP basis as well as certain non-GAAP financial information.
Gerry: A reconciliation between GAAP and non-GAAP financial information is also provided in the press release and slides posted on our website.
Gerry: In general our non-GAAP financial information excludes restructuring costs acquisition and integration costs noncash stock based compensation expense amortization expense and other unusual or infrequent items.
Paige Melching: 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 are referring to our non-GAAP information. I would now like to turn the call over to Yuri.
Gerry: 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 Gerry.
Jure Sola: Thanks, Paige. Good afternoon, ladies and gentlemen. Welcome, and thank you all for being here with us today. First, I would like to take this opportunity to recognize Sanmina's leadership team, our employees, for doing a great job. So to you, Sanmina's team, thank you for your dedication to delivering excellent service to our customers.
Gerry: Thanks Paige.
Gerry: Afternoon, ladies and gentlemen, welcome and thank you all for being here with US today first I would like to take this opportunity to recognize <unk> leadership team our employees for doing a great job.
Gerry: So to us I mean as Steve Thank you.
Gerry: What are your dedication in delivering excellent service to our customers.
Jure Sola: And let's keep it up. Now, let's go to our agenda for today's call. We have John to review details of our results for you, and I will follow up with additional comments about Sanmina's results and future goals.
Steve: Yeah, let's keep it up.
Steve: Now, let's go to our agenda for today's call.
Steve: I have John to review details of our results for you.
John: Follow up with additional comments about Sanmina is a results and future goals.
Jure Sola: Then John and I will open the call for questions and answers. And now, I would like to turn this call over to John. Okay?
John: John and I will open for question and answers and now I would like to turn this call over to John John.
Jonathan P. Faust: Great. Thank you, Yuri.
John: Great. Thank you Gary and good afternoon, ladies and gentlemen, thank you for joining us here today.
Jonathan P. Faust: And good afternoon, ladies and gentlemen. Thank you for joining us here today. Before we go through the financial results, I want to acknowledge the entire Sanmina team for executing and delivering financial results in line with the company's outlook and continuing to do an excellent job. Now, let's talk about the Q2 results. Please turn to slide five.
John: Before we go through the financial results I want to acknowledge the entire sanmina team for executing and delivering financial results in line with the company's outlook and continuing to do an excellent job.
John: Now, let's talk about the Q2 results.
John: Please turn to slide five.
Jonathan P. Faust: Second quarter revenue was $1.835 billion, at the low end of our $1.825 to $1.925 billion guidance range, which is down approximately 2% sequentially. We believe the business has leveled out from a revenue perspective, and we expect to see improvements in the quarters ahead as customer inventory absorption headwinds dissipate, which Jure will comment on more in his prepared remarks. Non-GAAP gross margin was 8.9%, which exceeded the high end of our outlook and was up 10 basis points sequentially and 50 basis points compared to the same period last year.
Second quarter revenue was $1.835 billion at the low end of our 1.8 to five to $1.9 billion to $5 billion guidance range, which is down approximately 2% sequentially.
John: We believe the business has leveled out from a revenue perspective, and we expect to see improvements in the quarters ahead as customer inventory absorption headwinds dissipate, which area will comment on more in his prepared remarks.
John: non-GAAP gross margin was eight 9%, which exceeded the high end of our outlook and was up 10 basis points sequentially and 50 basis points compared to the same period last year.
Jonathan P. Faust: We're very pleased with this gross margin result, which is due to a combination of favorable mix, focused execution, and strong operating discipline. Non-GAAP operating expenses were $63.6 million, slightly above our outlook of $60 to $62 million, primarily driven by incremental expenses related to our deferred compensation plan, which was completely offset by an asset gain in the other income and expense line item.
John: We're very pleased with this gross margin result, which is due to a combination of favorable mix focused execution and strong operating discipline.
John: non-GAAP operating expenses were $63 $6 million slightly above our outlook of $60 million to $62 million, primarily driven by incremental expense related to our deferred compensation plan, which was completely offset by an asset gain in the other income and expense line item.
John: non-GAAP operating margin was five 4%, which was at the midpoint of our outlook and down slightly at 10 basis points sequentially and 40 basis points compared to the same period last year.
Jonathan P. Faust: Non-GAAP operating margin was 5.4%, which was at the midpoint of our outlook and down slightly at 10 basis points sequentially and 40 basis points compared to the same period last year. This operating margin result was also impacted by the incremental deferred compensation expense that I noted earlier, but it's still solidly in the short-term range of 5% to 6% that we set earlier this year. Non-GAAP other income and expense was $6.5 million, favorable to our guidance of approximately $12 million, driven by the asset gain that I mentioned previously, as well as higher interest income due to our strong cash generation results and less interest expense due to lower usage of our revolvers.
John: This operating margin result was also impacted by the incremental deferred compensation expense that I noted earlier, but its still solidly in the short term range of 5% to 6% that we set earlier this year.
John: non-GAAP other income and expense was $6 $5 million favorable to our guidance of approximately $12 million driven by the asset game that I've mentioned previously as well as higher interest income due to our strong cash generation results and less interest expense due to lower usage of our revolver.
non-GAAP earnings per share came in at $1 30.
Jonathan P. Faust: Non-GAAP earnings per share came in at $1.30 based on approximately 57 million shares outstanding on a fully diluted basis and at the high end of our outlook. Now, please turn to slide six to talk about the segmenters.
John: Based on approximately 57 million shares outstanding on a fully diluted basis and at the high end of our outlook.
John: Now please turn to slide six to talk about the segment results.
John: IMS revenue came in at $1.46 billion down approximately 3% sequentially. However, IMS non-GAAP gross margin was up 10 basis points sequentially to seven 7% due to strong operational execution and our continued focus on driving manufacturing efficiencies.
Jonathan P. Faust: IMS revenue came in at $1.46 billion, down approximately 3% sequentially. However, IMS non-GAAP gross margin was up 10 basis points sequentially to 7.7% due to strong operational execution and our continued focus on driving manufacturing efficiency. CPS revenue came in at $398 million, up slightly at about 1% sequentially, and non-GAAP CPS gross margin was down 10 basis points sequentially to 12.9% due to unfavorable measures. While we're pleased with these results, we continue to see opportunity for margin improvement in both the IMS and CPS segments going forward, further supporting our longer-term margin objective.
John: C. P. S revenue came in at $398 million up slightly at about 1% sequentially.
John: non-GAAP Cps gross margin was down 10 basis points sequentially to 12, 9% due to unfavorable mix.
John: While we're pleased with these results we continue to see opportunity for margin improvement in both the IMS and Cps segments going forward further supporting our longer term margin objectives.
Jonathan P. Faust: Now, please turn to slide 7 to talk about the balance sheet. Our balance sheet is a key advantage of the company and a pillar of our value proposition to investors, and the team did a great job managing it again this quarter. Cash and cash equivalents were $651 million. At the end of the quarter, we had no borrowings on our revolver, leaving us with substantial liquidity of over $1.5 billion.
John: Now please turn to slide seven to talk about the balance sheet.
John: Our balance sheet is a key advantage of the company and a pillar of our value proposition to investors and the team did a great job managing it again this quarter.
John: Cash and cash equivalents were $651 million.
John: At the end of the quarter, we had no borrowings on our revolver, leaving us with substantial liquidity over of over $1.5 billion.
Jonathan P. Faust: We ended the second quarter with inventory of $1.38 billion, down slightly sequentially, and inventory returns were $4.8 billion, up slightly sequentially. We continue to focus on improving our inventory position and increasing turns. Our non-GAAP pre-tax ROIC was 22% for the quarter, well above our weighted average cost of capital.
John: We ended the second quarter with inventory of $1.38 billion down slightly sequentially and inventory turns were 4.8 up slightly sequentially.
John: We continue to focus on improving our inventory position and increasing turns.
John: Our non-GAAP pre tax ROIC was 22% for the quarter well above our weighted average cost of capital.
Jonathan P. Faust: We continue to have one of the strongest balance sheets in the industry with a low leverage ratio of 0.57 times, which allows us to both navigate complex market environments and capitalize on the long-term opportunity in front of us simultaneously. Please turn to slide 8, where I'll talk about cash flow and capital allocation. We did a great job managing cash this quarter, and I'm confident we are putting our cash to use in the right areas.
John: We continue to have one of the strongest balance sheets in the industry with a low leverage ratio of 0.57 times, which allows us to both navigate complex market environments and capitalize on the long term opportunity in front of us simultaneously.
John: Yeah.
Speaker Change: Please turn to slide eight where I'll talk about cash flow and capital allocation.
We did a great job managing cash this quarter and I'm confident we're putting our cash to use in the right areas.
Jonathan P. Faust: To touch on a few highlights, cash flow from operations was $72 million for the quarter, and approximately $200 million for the first half. Capital expenditures were $30 million for the quarter, as we continue to make investments in the end markets that will support Sanmina's long-term profitable growth. Free cash flow was $43 million for the quarter, and $135 million for the first half.
Speaker Change: Touch on a few highlights cash flow from operations was $72 million for the quarter and approximately $200 million for the first half.
Speaker Change: Capital expenditures were $30 million for the quarter as we continued to make investments in the end markets that will support Sanmina is long term profitable growth.
Free cash flow was $43 million for the quarter and $135 million for the first half.
Jonathan P. Faust: During the quarter, we repurchased 28,000 shares for approximately $1.4 million, and for the first half, we've repurchased 2.2 million shares for approximately $107 million. As of March 30th, we have approximately $172 million left on our board-authorized plan, and we intend to continue to repurchase shares on an opportunistic basis. Our focus and execution on cash generation provides us with the flexibility to invest in the business. When making those investment decisions, we look for opportunities to drive shareholder value while taking a disciplined, ROI-based approach, which is a practice we will continue to follow going forward.
During the quarter, we repurchased 28000 shares for approximately $1.4 million and for the first half we've repurchased two 2 million shares for approximately $107 million.
Speaker Change: As of March 30th we have approximately $172 million left on our board authorized plan and we intend to continue to repurchase shares on an opportunistic basis.
Speaker Change: Our focus and execution on cash generation provides us with the flexibility to invest in the business.
Speaker Change: When making those investment decisions, we look for opportunities to drive shareholder value, while taking a disciplined ROI based approach, which is our practice, we will continue to follow going forward.
Jonathan P. Faust: To conclude on the Q2 actual results, overall, it was a strong quarter as we delivered on what we said we would, and we continue to set up the company for future success. Now, please turn to slide nine.
Speaker Change: To conclude on the Q2 actual results overall it was a strong quarter as we delivered on what we said we would and we continue to set up the company for future success.
Now please turn to slide nine.
Speaker Change: I'll now cover our outlook for the third quarter, which is based on what we're seeing in the market and forecasts from our customers.
Jonathan P. Faust: I'll now cover our outlook for the third quarter, which is based on what we are seeing in the market and forecasts from our customers. Our outlook is as follows: Revenue was between $1.8 to $1.9 billion, up slightly sequentially. Now, in this type of market environment, we believe it's prudent to continue with our practice of only guiding one quarter at a time, but we are seeing signs that demand and revenue are starting to improve, which Jerry will elaborate on shortly. Non-gap gross margin of 8.3% to 8.9%, up slightly sequentially and dependent on mix, operating expenses of $60 to $62 million, in line with normal levels, and non-gap operating margin of 5.
Speaker Change: Our outlook is as follows.
Speaker Change: Revenue between $1.8 billion to $1.9 billion up slightly sequentially.
Speaker Change: Now in this type of market environment, We believe it's prudent to continue with our practice of only guiding one quarter at a time, but we are seeing signs that demand and revenue are starting to improve which Jerry will elaborate on shortly.
Speaker Change: non-GAAP gross margin of eight 3% to eight 9% up slightly sequentially and dependent on mix.
Speaker Change: Operating expenses of $60 million to $62 million in line with normal levels.
Speaker Change: non-GAAP operating margin of five 3% to five 7% up slightly sequentially.
Jonathan P. Faust: We expect other income and expense to be approximately $12 million in line with normal levels, and the tax rate of 17% to 18%. We estimate an approximate $3 to $3.5 million non-cash reduction to our net income to reflect our India JV partners' equity interests. Non-GAAP EPS in the range of $1.22 to $1.32 based on approximately 57 million fully diluted shares outstanding. Capital expenditures to be around $40 million to support new programs and future opportunities as we continue to invest where needed to support our long-term strategy. And finally, depreciation of approximately $30 million.
Speaker Change: We expect other income and expense to be approximately $12 million in line with normal levels.
Speaker Change: Tax rate of 17% to 18%.
Speaker Change: We estimate an approximate three to three and a half million dollars noncash reduction to our net income to reflect our India JV partner's equity interest.
Speaker Change: non-GAAP EPS in the range of one dollar and 22 cents to $1.32 based on approximately 57 million fully diluted shares outstanding.
Speaker Change: Capital expenditures to be around $40 million to support new programs and future opportunities as we continue to invest where needed to support our long term strategy.
Speaker Change: And finally depreciation of approximately $30 million.
Jure Sola: Overall, I'm very pleased with our performance this quarter as we delivered on what we said we would. With that, let me turn the call over to Jure to talk more about the business. Thank you, John.
Speaker Change: Overall I'm very pleased with our performance this quarter as we delivered on what we said we would.
Speaker Change: With that let me turn the call over to Jerry to talk more about the business. Thank you John Ladies and gentlemen, let me add few more comments about our second quarter.
Jure Sola: Ladies and gentlemen, I'll add a few more comments about our second quarter, and then I'll review our end markets and outlook for the third quarter and the rest of fiscal year 2024. Please turn to slide 11. As you heard from John, for the second quarter, we delivered good results. Overall, we met our outlook. We are seeing stabilization in some of our end markets and incremental improvements in demand. Recovery is slightly slower than expected at the beginning of the year.
Jerry: Then I'll review, our end markets and outlook for the third quarter and the rest of the fiscal year 'twenty 'twenty four.
Jerry: Please turn to slide 11.
Jerry: But as you heard from John for the second quarter would deliver good results older well overall, we met our outlook.
Jerry: We're seeing stabilization and some are in end markets and incremental improvements in demand.
Jerry: Recovery is slightly slower than expected beginning of the year.
Jure Sola: But we are working very closely with our customers as they are burning through their inventory. I can tell you that macroeconomic uncertainty remains, but Sanmina's team continues to demonstrate resilience and deliver good financial results in this environment. So what is the main advantage in the economic market? I can tell you that we are well diversified in growth markets. Sanmina has a strong customer base of market leaders to help us to get through this environment.
Jerry: But we are working very close with our customers as they are burning through their inventory.
Jerry: I can tell you that macroeconomic uncertainty remains.
Jerry: But to me the theme continues to demonstrate the resilience and delivered good financial results in this environment.
Jerry: So what is sent me an advantage.
Jerry: I can tell you that we're well diversified in growth markets.
So I mean, it has strong customer base of market leaders.
Jerry: To help us to get through this environment.
Jure Sola: We are working very closely with our key customers on existing and new projects to drive growth as the market improves. Our business is well aligned to adapt to present market dynamics. We have strong cost management in place. We have aligned our costs to present business demand.
Jerry: We're working very close with our key customers with existing and new projects to drive growth as market improves.
Jerry: Our business is well aligned to adopt to present market dynamics.
Jerry: We have thrown cost management in place, we have aligned our costs to present business demand.
Jerry: And as John mentioned, Meshing, Sanmina industries, leading balance sheet gives us a lot of flexibility to Moscow to maximize shareholder value.
Jure Sola: And as John mentioned, Sanmina Industries' leading balance sheet gives us a lot of flexibility to maximize shareholder value. So please turn to slide 12.
Speaker Change: So please turn to slide 12.
Speaker Change: Now, let me talk to you about revenue by end markets.
Jure Sola: Now, let me talk to you about revenue and markets. Revenue for the second quarter was $1.835 billion, roughly slightly down approximately 2% quarter over quarter, within our guidance. I can say the forecast was more predictable this quarter. Industrial, medical, defense, aerospace, and automotive were 67% of our revenue, slightly down 2.5%, quarter over quarter. For defense, airspace, and automotive, we saw good demand during this quarter. For communication networks, and cloud infrastructure, that was 33% of our revenue, slightly down 1.5%, quarter over quarter. Also, I can tell you that we had higher demand from new projects in the communication networks and cloud segment, but we could not ship them because of material shortages and some testing capacity issues.
Speaker Change: Revenue for second quarter was 1.835 billion, roughly slightly down approximately 2% quarter over quarter within our guidance.
Speaker Change: I can say that forecast for more predictable this quarter.
Speaker Change: Industrial medical defense Aerospace and automotive was 67%, though our revenue slightly down two 5% quarter over quarter.
For defense Aerospace and automotive we saw good demand during this quarter.
Speaker Change: For communication networks cloud infrastructure that was 33%, though our revenue slightly down one 5% quarter over quarter.
Speaker Change: Well, so I can tell you that we had a higher demand for new projects and communication networks and clouds and cloud segment.
Speaker Change: But we could not ship it because of material shortages and some testing capability. It kept those capacity issues. These issues will be resolved in our third quarter.
Jure Sola: These issues will be resolved in our third quarter. For the second quarter, our top 10 customers represented 48.5% of our revenue. We're a well-diversified company, and we have no customers over 10% plus. I can also tell you that the bookings for the second quarter improved nicely. Book to bill was 1.1 plus to 1.
Speaker Change: For second quarter top 10 customers represented 48, 5% of our revenue, we're well diversified company.
Speaker Change: And we have no customers over 10% plus.
Speaker Change: I can also tell you that the bookings for a second quarter improve nicely book.
Speaker Change: Book to Bill was 1.1, plus two one.
Speaker Change: Newer products are driving demand.
Jure Sola: Your products are driving demand. Please turn to slide 13. Sanmina is continuing to invest in faster growing and higher margin markets such as cloud infrastructure, defense and aerospace, medical, automotive, renewable energy, industrial, and optical advanced packaging. So, let me make a few comments on each of them. For cloud infrastructure, AI and ML are driving new opportunities for us. We've been driving. It's mainly being driven by upgrades in our cloud networks to meet AI traffic needs.
Speaker Change: Turn to slide 13.
Speaker Change: [laughter] some units continued to invest in our faster growing and higher margin end markets, such as cloud infrastructure defense and aerospace medical automotive renewable energy industrial and optical advanced packaging.
Speaker Change: So let me make a few comments on each of them for cloud infrastructure AI and ml is driving new opportunities for us we've been driving.
Speaker Change: It would be it's mainly being driven by upgrades in our cloud networks to meet a traffic needs.
Jure Sola: Sanmina is well positioned to benefit from growth in AI. We're benefiting from some of it right now, and the rest of the 24, but we're expecting to see more benefits and bigger opportunities in calendar year 2025. For defense and aerospace, we continue to see solid demand. New program wins are driving long-term growth. For medical, our focus is on digital health and medical devices, such as disposables, consumables, drug delivery, surgical, diagnostic imaging, and lab diagnostic systems.
Speaker Change: <unk> is well positioned to benefit from good old and AI, where benefit some right now.
And the rest of it are 24, but we are expecting to see more benefits and bigger opportunities in calendar year 'twenty or 'twenty five.
Speaker Change: For defense and aerospace, we continue to see solid demand.
Speaker Change: New program wins.
Speaker Change: Driving our long term growth.
Speaker Change: For medical all focuses on digital health and medical devices, such as disposable consumables drug delivery surgical.
Speaker Change: Ignostic imaging and lab diagnostic systems.
Jure Sola: We have a strong base of customers, and we are well positioned here. We see positive trends in the long term. For a motive, we mainly focus on electric vehicles and electrical charges.
We have a strong base of customers and we are well position here, we see positive trends.
Speaker Change: Long term.
Speaker Change: What a motive, we mainly focus on electrical vehicle and electrical charges.
Jure Sola: Short-term demand is softer, but our new opportunities will drive growth. We see a better forecast for the September and December quarters, and we expect to see improvements in demand longer term as we enter fiscal year 20, calendar year 25, and beyond. For renewable energy, we continue to build new projects. We've been focusing around generation and storage of power. Power Controls and Management.
Speaker Change: Short term demand is softer.
Speaker Change: But there are new opportunities will drive the growth, we see a better forecast for September and December quarter, and we expect to see improvements in demand longer term as we enter.
Speaker Change: Fiscal year, 'twenty calendar year, 'twenty five and beyond.
Speaker Change: For renewable energy will continue to win new projects, we've been focusing that on generation of generation and storage of power.
Speaker Change: Power controls and management.
Speaker Change: Yeah same thing new opportunities are driving the growth for us for industrial we have solid customer base, we see stable demand.
Jure Sola: Here, the same thing, new opportunities are driving growth for us. For industrial, we have a solid customer base. We see stable demand. We've been focusing on factory automation, test and measurement, and inspection equipment.
Speaker Change: We've been focusing on factory automation test and measurement and inspection equipment.
Jure Sola: For the semiconductor part of the industry, we focused on lithography, that business for us is stable, but we should see more improvements in the second half of 2024. Overall, we have solid new projects in the pipeline that will drive growth longer term. For optical advance and packaging, we expand this optical business for AI applications, mainly around 800 gigabyte modules. And we're starting to do the R&D and new product introduction for 1.6 terabytes. Again, good opportunities here. Growth in cloud and data center will drive growth for this segment in the longer term. Please turn to slide 14.
For semiconductor part of the industrial we talk we focus only target a fee that business for us to be stable, but we should see more improvements in the second half of 'twenty four.
Speaker Change: Overall, we are solid new projects in the pipeline that will drive the growth longer term.
Speaker Change: For the optical advanced packaging, we expand is optical business for applications, mainly around 800 gig modules and we are starting to do the right R&D and new product introduction and a 1.6 terabytes again good opportunities here.
Speaker Change: In cloud and data center will drive the growth for this segment for the longer term. Please turn to slide 14.
Speaker Change: I just wanted to show you a few slides I mean, a few pictures on this slide to see worse I mean up participates in AI and ml today as you can see for AI and ml.
Jure Sola: I just wanted to show you a few pictures on this slide to see where Sanmina participates in AI and ML today. As you can see, for AI and ML, for infrastructure such as communication, cloud infrastructure across multiple product lines such as servers, IC hardware, software development, semiconductor capital, optical components such as optical modules, power controls, power management, networking equipment, and service and storage. Our consumption of AI and ML is going across all our markets, such as automotive, transportation, safety, security, healthcare, defense, and aerospace.
Speaker Change: For infrastructure, such as communications cloud infrastructure across multiple product lines, such as our servers I see hardware software development semiconductor capital optical components, such as optical modules.
Barbara controls Baba management networking equipment and service and storage.
Speaker Change: Our consumption of AI and ml is going across all our markets such as automotive transportation safety or security health care defense and aerospace.
Jure Sola: And then, of course, what we're doing internally, utilizing IAM and ML by automating our factories and machine learning, and back offices. So, as you can see, we're heavily involved in AI, and I believe this will drive a better future for us. Please turn to slide 15. His summary.
Speaker Change: And then of course, what we're doing internally utilizing I M N M milk by automating.
Our factories and machine learnings and back offices. So as you can see we are heavily involved in.
Speaker Change: In AI and I believe this will drive a better future for us.
Speaker Change: Please turn to slide 15.
Speaker Change: In summary.
Speaker Change: For the second quarter with solid execution revenue of 1.83 billion a line without outlook non-GAAP operating margin of five 4% non-GAAP diluted EPS of dollar and 30 cents high end of outlook. So overall respectable quarter for <unk>.
Jure Sola: For the second quarter, we have solid execution, revenue of $1.83 billion, in line with our outlook. Non-GAAP operating margin, 5.4%. Non-GAAP diluted EPS of $1.30, the high end of the outlook. So overall, a respectable quarter. For the third quarter, our end markets outlook, as John mentioned, is what we're seeing from our customers today. The third quarter will have a guidance of $1.8 to $1.9 billion. Non-GAAP EPS will be between $1.22 and $1.32.
Speaker Change: At quarter, our end markets outlook, because as John mentioned as what we've seen from our customers today that third quarter will have a guidance of 1.8 to $1 9 billion.
Speaker Change: non-GAAP EPS will be at the $1 20 to $2 32.
Jure Sola: On the positive side, our visibility is getting better, and we're starting to see more, or I should say, some normalization of the supply chain. For the fourth quarter, we remain optimistic that we will see sequential improvements as we move into the second half of the year. And we are starting to see stronger forecasts for our September quarter as we are getting our forecasting right. And I can tell you that I'm personally excited about long-term growth for Sanmina. As I said before, the physical year 2024 is a transition year for us.
Speaker Change: On positive side, our visibility is getting better and we're starting to see more or I should say some normalization of supply chain.
Speaker Change: For fourth quarter, we remain optimistic that we will see sequential improvements as we move into the second half of the year.
Speaker Change: And we are starting to see stronger forecasts for our September quarter.
Speaker Change: As we are getting out of forecasting.
Speaker Change: I can tell you that I'm personally excited about long term growth for Sanmina.
Speaker Change: As I said before physical year of 'twenty 'twenty four is a transition year for us.
Jure Sola: We are navigating this market dynamics pretty well in the short term. Our operating margins are holding, and they're stable in the region of five to six percent. At the same time, longer term, we are positioning the company by making changes and improvements to drive operating margin to six plus percent. We expect that fiscal year 25 will be a growth year for our end markets. And our focus is to drive growth in a heavily regulated market. We believe that's where we have a competitive advantage, and we've got a position there. So, in summary, for the short term and the long term, Sanmina is well positioned to manage through this dynamic market.
Speaker Change: We are navigating these market dynamics pretty well.
Speaker Change: Short term.
Speaker Change: Our operating margins are holding and they're stable in the range of 5% to 6% at the same time longer term, we are positioning the company by making changes and improvements to drive operating margin to six plus percent.
Speaker Change: We expect that the fiscal year with 45 will be a growth year for our end markets.
Speaker Change: And our focus is to drive the growth in AR.
Speaker Change: Heavy regulated markets, we believe that's where we have competitive advantage and we've got a position there. So in summary for short term and long term sanmina is well positioned to manage through this dynamic markets.
Jure Sola: Ladies and gentlemen, now I would like to thank you all for your time and your support. Operator, we're now ready to open the lines for questions and answers. I'd like to say thank you again.
Speaker Change: Ladies and gentlemen, now I would like to thank you all for your time and your support operator, we're now ready to open the lines for question and answers I'd like to say thank you again.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yeah.
Operator: Jenny, are you there? Thank you, ladies.
Speaker Change: Operator.
Jenny: Jenny are you there.
Jenny: Thank you ladies and gentlemen, we will now begin the question and answer session.
Operator: Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press the star followed by the 1 on your touchtone phone. You will hear a prompt that your hand has been raised. Questions will be taken in the order received. If you wish to cancel your request, please press the star followed by 2. If you are using a speakerphone, please lift the handset before pressing any keys.
Operator: Do you have a question. Please press star followed by the one and you touched on sound you will hear a problem that you had have been leased.
Speaker Change: Jos will be taken in the order receipt did.
Speaker Change: Did you wish to cancel your request. Please press the star followed by the town.
Speaker Change: We are using a speaker phone please lift the handset before pressing one.
Operator: One moment, please, for your first question. Your first question is from Ruplu Bhattacharya from Bank of America. Please ask your question.
Speaker Change: One moment. Please for your first question.
Speaker Change: Okay.
Okay.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Your first question is from ever approved by the <unk> from Bank of America. Please ask your question.
Ruplu Bhattacharya: Hi, thank you for taking my questions. The communications and cloud segment was down 36% year-on-year. Can you help us parse that? How much was communications down, and how much did the cloud grow? And can you give us some more details on that segment? I mean, how are you seeing inventory correction in that segment? And how did optical versus networking versus wireless, how did the different end markets within communications pan out this quarter? And how do you see them trending over the next couple of quarters?
Hi, Thank you for taking my questions.
Usually the communications and cloud segment was down 36% year on year can you help us parse that how much was communications down and how much did cloud grow and can you give us some more detail than that segment I mean, how are you seeing inventory correction.
Speaker Change: In that segment, and how did optical versus networking versus wireless.
Speaker Change: The different end markets within communications, how would it be pan out this quarter and how do you see them trending over the next couple of quarters.
Jure Sola: Well, Ruplu, thanks for the question. First of all, it's no surprise that the communication market has been down, in my opinion, for the last three quarters, mainly driven by inventory adjustments and some softer demand in certain segments. But, you know, you asked the question, when is it going to end?
Speaker Change: Well thanks for the question first of all there's no surprise.
Speaker Change: And that communication market is being down now in my opinion for the last three quarters.
Speaker Change: Mainly driven by our inventory adjustments.
Speaker Change: And some softer demand in certain segments.
Hum.
But you know you asked the question what is going to and I believe you know, we're coming to the to the bottom of it.
Jure Sola: I believe, you know, we're coming to the bottom of it. As I said, we're starting to see some normalization when it comes to the supply chain, and we're starting to see some more predictable forecasts. And most importantly, as I said, I think as we go forward, I think our visibility is better, and so on and so on. I think back. The cloud itself is doing better for us. That's about it. Today, if you look at 33% of revenue, about half of that is the cloud, and half of it is communication networks.
Speaker Change: I said, we're starting to see some normalization when it comes to supply chain and we are starting to see some more predictable.
Speaker Change: Forecasts and most importantly, as I said I think as we go forward I think our visibility is better and so on and so on.
Speaker Change: Back to our I D.
Thank you Anna.
Speaker Change: The cloud itself is doing better for us that that's about.
Speaker Change: If you if you today, if you look at that 33% of their revenue about a half of that is cloud they have of ace communicate communication networks a lot of the business that we do is around the net force can optical networks.
Jure Sola: A lot of the business that we do is around networks and optical networks, Ruplu. But the whole communication demand has got affected, especially around 5G and so on and so on. But on the positive side, we're starting to see the light at the end of the tunnel, and it's not a train anymore.
Speaker Change:
Speaker Change: But the whole a whole communication demand he's got affected especially around the five G and so on and so on so but it's on the positive side, we're starting to see the light end of the tunnel and it's not a train anymore.
Got it got it that's helpful.
Ruplu Bhattacharya: Got it. Got it. That's helpful.
Ruplu Bhattacharya: Maybe as a follow-up, Yuri, I can ask you, you know, on slide 13, you talk about Sanmina's expertise in optical packing, and you talked about 800 gigabytes and 1.6 terabytes. Can you give us a little bit more detail on what type of stuff, what are the projects that you're working on, and when do you think these technologies will become mainstream? Like, when are you shipping 800 gigabytes now, or is that in the testing phase? So, any timeline for these technologies to become more widely adopted? Yeah,
Speaker Change: The follow up here I can ask you on slide 13, you talk about Sanmina has expertise in optical backing and you've talked about 800 gig and 1.6 terabyte can you give us a little bit more detail on what type of stuff.
Speaker Change: Are the projects that you're working on and when do you think these technologies will become mainstream like when are you shipping now or is that in testing phase. So any any timeline these technologies to become more and more adopted.
Jure Sola: Yeah, we've been in the optical business for a long time, especially optical networks. That business for us is pretty strong overall; we have a strong customer base.
We've been in our optical business for a long time, especially optical network said that business for us.
Speaker Change: It is a pretty strong overall with a strong customer base. We started getting involved in optical modules are I would say last five six years, we've been investing a fair amount in last couple of years until optical advanced packaging.
Jure Sola: We started getting involved in optical modules, I would say, the last five, six years. We've been investing a fair amount in the last couple of years into optical advanced packaging. You know, we've been doing, you know, 400 gigabyte type of product; we started to do 800 gigabyte and made some shipments across our optical product line on 1.6 terabyte, that's in development with a couple of partners of ours and MITS on designs and an NPI process.
Speaker Change: You know we've been doing you know 400 gig type of a product where you're starting to do it.
Speaker Change: 800 gig and making some shipments across our optical product line.
Speaker Change: One six that are bad debts and develop it with a couple of partners of ours.
Speaker Change: And mid seven design centers and NPI process process.
Speaker Change: Okay, Okay, and maybe maybe I'll ask one question, John So inventory was down sequentially a little bit this quarter can you give us your thoughts on the overall cash conversion cycle and how you see free cash flow trending and just remind us on your uses of cash how should we think about how you prioritize.
Ruplu Bhattacharya: Okay, maybe I will ask one question to John. So inventory was down sequentially a little bit this quarter. Can you give us your thoughts on the overall cash conversion cycle and how you see free cash flow trending, and just remind us about your uses of cash. How should we think about how you prioritize uses of cash in this environment?
Speaker Change: Our uses of cash in this environment.
Jonathan P. Faust: Yeah, sure, Ruplu. Thanks for the question. So, you know, in terms of the cash conversion cycle, we're in the mid-70s right now, but if you look back at the history of Sanmina, we're closer to the 50s.
John: Yeah sure. Thanks for the question. So you know in terms of the cash conversion cycle, where were in the mid seventies right now, but if you look back at the history of Sanmina, we're closer into the fifties and so that's certainly what we're gonna be striving towards right. Then if you break that down between D. O I D. S. O D. P. O I think we've got a little bit of room to approve across.
Jonathan P. Faust: And so that's certainly what we're going to be striving towards, right? And if you break that down between DOI, DSO, and DPO, I think we've got a little bit of room to approve across the board. Inventory itself is quite a bit elevated, you know, several days beyond what our, you know, historical levels have been. DPO is not quite as high.
John: The board inventory itself is quite a bit elevated several days beyond what our historical levels have been you know D. P. O is not quite as high. So so you know we're definitely going to be focused on working capital initiatives to bring that back down into line, which should help us generate more cash and in terms of our.
Jonathan P. Faust: So, you know, we're definitely going to be focused on working capital initiatives to bring that back down into line, which should help us generate more cash. And in terms of our priorities for capital allocation, you know, those haven't changed, right? And we've got four of them just to reiterate for you and everybody else on the call.
John: Priorities for capital allocation those haven't changed right and we've got four of them just to reiterate reiterate for you and everybody else on the call. So number one is an organic growth indeed, the business two strategic transactions transactions or inorganic growth three paying down our debt, which is a pretty low levels.
Jonathan P. Faust: So number one is organic growth in the business. And two, strategic transactions or inorganic growth. Three, paying down our debt, which is at pretty low levels already. And then, number four, share repurchases, which, as I mentioned, we'll continue to do opportunistically.
Already in that number for share repurchases, which as I mentioned, we will continue to do opportunistically.
Jonathan P. Faust: Just to add to that, cash flow was pretty strong for six months, about 200 million dollars, and we expect to continue to generate strong cash for the rest of the year. Absolutely.
John: Just to add to that our cash flow. It was pretty strong for six months about $200 million and we expect to continue to generate strong cash for rest of the year, Yeah, absolutely Yeah, and do you expect strong free cash flow to continue for the rest of calendar 'twenty four yeah.
Ruplu Bhattacharya: And do you expect strong free cash flow to continue for the rest of calendar 24?
Jonathan P. Faust: Yeah, and as you know, you know, Ruplu, we guide one quarter at a time, but we are guiding cash flow to be positive in Q3, and as Jerry mentioned, very pleased with the performance that we saw here in the first half, in the first two quarters, you know, and then we expect to generate cash going into Q3. Thank you for all the details. I appreciate it.
And as you know yeah route Blue We guide one quarter at a time, but we are guiding cash flow to be positive in Q3, and as Jerry mentioned very pleased with the performance that we saw here in the first half and the first two quarters and then we expect to generate cash going into Q3 as well.
Speaker Change: Alright, Thank you for all the details appreciate it.
Ruplu Bhattacharya: Thank you for all the details; I appreciate it.
Speaker Change: Hello.
Speaker Change: [noise].
Speaker Change: Yeah.
Speaker Change: Operator, our next question please.
Operator: Operator, for our next question, please.
Speaker Change: Yes. Your next question is from Steven Fox from Fox Advisors. Please ask your question.
Operator: Yes, your next question is from Stephen Fox from Fox Advisors. Please ask your question.
Stephen FOX: Hi, good afternoon. Hi Stephen. How are you? I'm good.
Steven Fox: Hi, good afternoon.
Steven Fox: How are you I'm good good to talk to you guys.
Stephen FOX: Good to talk to you guys. A couple of questions if I could. First of all... No problem.
Steven Fox: A couple of questions if I could.
Steven Fox: [laughter] no.
Speaker Change: No practical.
Speaker Change: In terms of just you'd mentioned some test capacity issues and some supply chain constraints during the quarter can you expand on that and make sure I just want to make sure what served markets, we're talking about and what and how youre solving that problem than that yeah, yeah, Steve that came from communications cloud.
Stephen FOX: In terms of just you mentioned some test capacity issues and some supply chain constraints during the quarter. Can you expand on that, and I just want to make sure what sort of markets we're talking about and how you solve that problem that I had? Yeah, Steve, that came from the communication cloud customer base. We want a pretty good size for our project that should go on for the next three, four, five quarters.
Our customer base.
Speaker Change: Where do we want.
Steve: Pretty good size of a project that's cause should go on for the next you know 345 quarters.
Jure Sola: And this mainly is driven around our customer design and also top customer design of our test fixturing. And some of the modifications, as we got involved in production, we realized some modifications needed to be made. We had some shortages of materials at the same time we were changing. On the positive side, these things will be resolved sometime this quarter, and then we should continue to make shipments. Hopefully, sometime at the end of this quarter and the next quarter, and it should be a pretty good program for us going forward.
Speaker Change: And it's this mainly driven around our customer our design and also a top customer design of a of a test fixture ring and witnessed some of the modification as we got involved in production we realized some of them modification needed to be made we have some shortages of materials at the same time.
Speaker Change: We are changing on a positive side. These things will be resolved sometime this quarter and then wishes to start continue to make shipments hopefully sometimes at the end of this quarter and the next quarter and should be a pretty good program for us going forward.
Jure Sola: Got it. That's helpful. And then, as you mentioned, your gross margins were a little bit better than expected, and you still see room for gross margin improvement from here. Can you just walk through, you know, what you see as the gross margin opportunity, say, over the next, I don't know, two to four quarters?
Speaker Change: Got it that's helpful. And then as you mentioned your gross margins were a little bit better than expected and you still see room for gross margin improvement from here can you just walked through.
Speaker Change: You know what you see is the gross margin opportunity say over the next I don't know two.
Speaker Change: Two to four quarters.
Jure Sola: Well, Steve, I think we are working to improve the mix of our business driven by some of the technologies that we're offering to our customers and creating a lot more value, especially in the new market with some of the leading technologies that are coming out. So Sanmina's goal is not to sell just the price, but to sell the value that we provide to our customers. And I believe that what we're providing all the way from our high-technology printer circuit boards. If you look at the AI market here, and ML, it requires some more advanced printer circuit boards.
Speaker Change: And.
Speaker Change: Well, Steve I think we are working to improve the mix of our business driven by the some of the technologies that we are offering to our customers and creating a lot more value.
Speaker Change: As it and especially in a new market with some of the leading technologies that are coming out. So its I mean his goal is not to sell just a prize, but there sell the value that we provide to our customers and I believe that what we provide them all the way from our high technology printer circuit boards. If you look at AI market here and then Mel you require some more advanced.
Speaker Change: Printed circuit boards requires you know mechanical rocks cooling and so on that goes around it integration of service storage is so that's the area that will be moving to an area. You know as I mentioned earlier talking about optical expanding our optical business. We always were very strong in optical.
Jure Sola: It requires, you know, mechanical rocks, cooling, and so on that goes around the integration of service storage. So that's the area that we're moving to, an area, you know, I mentioned earlier, talking about optical, expanding our optical business. We always were very strong in optical networks and optical systems. But now we're starting to, we've been investing in optical components and optical modules because basically, there's a huge demand going to be going on in the next few years.
Speaker Change: Net force optical systems, but now we're starting to we've been investing into optical components and optical module still basically there's a huge demand going to be going on in next few years and I believe that we'll be able to participate in that and drive that drive the margin up we also.
Jure Sola: And I believe that we'll be able to participate in that and drive the margin up. We will also focus on expanding our defense and aerospace business. Demand for that business continues to be strong, and we want to expand that all the way from high-technology printer circuit boards to the board assembly, to the system assembly, and so on. Renewable energy is another area that fits our model, providing end-to-end from mechanical, electronics, you know, heavy power, and so on.
Speaker Change: <unk> focused on expanding our defense and aerospace business demand for that business continued to be strong and we want to you know expand it all the way from high technology of printed circuit boards to the Board Assembly to the system Assembly and so on.
Speaker Change: Renewable energy that's another area that fits our model providing end to end from mechanical electronics.
No heavy power and so on because especially around the AI as they upgrade their cloud it requires a lot of the.
Jure Sola: Because, especially around AI, as they upgrade the cloud, it requires a lot of the technology and capabilities that we deliver. So I think the potential business for us has been solid. I think we are investing the right things there, too. So overall, I would say the margin will be driven by the capabilities that we're providing to our customers, number one, and then providing more end-to-end solutions for our customers in the markets that we have a competitive advantage, that I said, more mission-critical type of a product.
Speaker Change: Technology and capabilities that we deliver industrial business for us as being solid I think we are investing the right things there too. So overall I would say the margin will be driven by the capabilities that we provide into our customer number one and are providing more end to end solution for all.
Speaker Change: Our customers in the markets that we have competitive advantage that I said more mission critical type of products.
Jure Sola: And then tuning things internally. As we went through this 24, as I call it, transition year, you know, we invested a lot in 23 for growth, and we positioned the company for growth. Unfortunately, in 24, demand went down because of inventory correction, what we ran because of COVID, and then slower demand.
Speaker Change: And then Tony things internally I think as we went through this morning, Florida as I call it transition year.
Speaker Change: <unk> invested a lot in 'twenty three for our growth and we position the company for growth. Unfortunately 40, Florida.
Speaker Change: Demand went down because of inventory correction, what we ran because of call. It in and then slower than men combination of those two things. It is a transition year, but what are you doing this type of environment, you'll you'll basically look at your company and try to tune things up so that allows us to do a better job as the market comes back at all.
Jure Sola: The combination of those two things is a transition year. Well, what do you do in this type of environment? You basically look at your company and try to tune things up so that it allows us to do a better job as the market comes back, and also, most importantly, to take care of our customers better and deliver better results for our shareholders. So combining all of that. You know, John, I don't know if you have anything else to add.
Speaker Change: So most importantly is to.
Speaker Change: Yeah, you know take care of our customers better and deliver the better better results for our shareholders. So that's combining all of that.
Speaker Change: Yeah, John I don't know if you have anything else to add I. You know I think you said it very well here I think the only thing I would add on top Steve to that to what you already said, which is all about driving value for our customers within the businesses and driving better segment are mixed results, but as we returned to growth we should get some natural operating leverage as well right. So if you add that on top of everything that you already have.
Jonathan P. Faust: I think you said it very well here. I think the only thing I would add on top, Steve, to that, to what Yuri said, which is all about driving value for our customers within the businesses and driving better segment or mixed results. But as we return to growth, we should get some natural operating leverage as well. So if you add that on top of everything that Yuri was saying, that's why we still believe that there's margin upside in both segments and for the company overall.
Speaker Change: He was saying that's why we still believe that there is margin upside in both segments and for the company overall.
Stephen FOX: That's an awesome explanation. I appreciate the color. I'll take my other questions offline. Thanks. Thanks, Steve.
Speaker Change: That's an awesome explanation I appreciate the color I'll take my other questions offline. Thanks, Thanks, Dave.
Speaker Change: Yeah.
Speaker Change: Operator, our next question. Please thank you.
Operator: Operator, for our next question, please. Thank you.
Speaker Change: Yeah. Thank you. Your next question is from <unk> <unk> from Sidoti. Please ask your question.
Operator: Yes, thank you. Your next question is from Anja Soderstrom from Sojoji. Please ask your question.
Speaker Change: Okay.
Anja Marie Theresa Soderstrom: Hi, thank you for taking my question. So I'm just curious, you came in on the lower end of the guidance range for revenue this quarter, and you expect sequential improvement. Next quarter, what gives you confidence in that? Are those shipments that were pushed out in communications, or are there other things driving that growth as well?
Sidoti: Hi, Thank you for taking my questions. So I'm. Just curious are you came in on the lower end sort of let lora end of the guidance range for revenue this quarter and you expect sequential improvement.
Sidoti: Mexico now what's what gives you confidence in that is that due to the shipments that were pushed out in communications.
Sidoti: And the other thing is driving that growth as well.
Jure Sola: Well, first of all, Anja, thanks for the question. Yeah, you know, we had a little bit extra. We could have shipped. Our revenue would have looked a little bit better than what we delivered. Yeah, but confidence is really what we are seeing from our customers, what they're telling us right now based on today's information. As we said, we will take one quarter of the time in this environment.
Speaker Change: Well first of all on the thanks for that question Yeah.
Speaker Change: We had a little bit extra that we could have shipped a revenue would've looked a little bit better than what we delivered.
Speaker Change: Yeah, but the confidence is really what we are seeing from our customers. What they are telling US right now based on today's information as we said we will take one quarter at a time in this environment.
Jure Sola: You know, I believe that what we've seen through Forcap is that ability is getting better. I think inventory burned down with a lot of our key customers. A lot of our customers are telling us the second half of the calendar year will get better, and the forecasts are looking better. So a combination of all of those things and some of the new programs that we have coming up should allow us to move in the right direction. John, anything else?
Speaker Change: You know I believe that what we've seen through forecast visibility is getting better I didn't mean it.
Speaker Change: Burned down.
Speaker Change: With a lot of our key customers.
Speaker Change: A lot of US a lot of our customers are telling us the second half of the calendar year will get better and the forecast that Luke and better. So combined combination of all of those things and some of the new programs that we have coming up sure allowed us to move in the right direction, Jon anything else. Yeah. I would just add areas are you know anya to what to your point that you know the.
Jonathan P. Faust: Yeah, I would just add, Anja, to Jure's point that, you know, the market's still pretty dynamic, with customers and end markets, at this point, turning the corner on demand and inventory absorption. But if you look at our guide for Q3 at the midpoint, we are expecting to see some modest sequential improvement. So we're staying close with our customers on that and looking forward to delivering as much as we can.
Jon: A market still pretty dynamic customers and end markets to his point, turning the corner on demand and inventory absorption, but if you look at our guide for Q3 and the midpoint you know we are expecting to see some modest sequential improvement.
So we're staying close with with our customers on that and then looking on delivering as much as we can.
Anja Marie Theresa Soderstrom: Okay, thank you. And the joint venture in India, how is that trending?
Speaker Change: Okay. Thank you.
Speaker Change: The joint venture in India, I stopped its finding its just like you.
Anja Marie Theresa Soderstrom: It seems like you had a lower payment for that this quarter.
Speaker Change: Payment for that this quarter.
Jure Sola: Let me just give you, from the business point of view, and John, you can make a comment on that. First of all, the India joint venture is going well. You know, we're running it the same way as we have ever before. We have a lot of interest from our customers, and we expect a lot of growth in India. So, from that point of view, I'm very happy where we are and even happier about the future.
Speaker Change: Yeah.
Speaker Change: Let me just give you from the business point of view and John you can make a comment on that first of all India Joe.
Speaker Change: Virtually is going well.
John: You know we run in the same ways, we run if ever before.
John: We have a lot of interest from our customers and we expect a lot of growth in India.
So from that point of view, a very hot people, where we add in more happy about the future John any comments, yeah, I think its ex cat executing well to Jerry's point and if you look at what we guided on yeah, right. We said about $3 million you know in the distribution and we did just just shy of that so pretty much right right on target right, where we wanted to be.
Jure Sola: John, any comments? Yeah, I think it's executing well, to Jure's point, and if you look at what we guided for, Anja, right, we said about $3 million in the distribution, and we did just shy of that, so pretty much right on target, right where we wanted to be. A lot of upside potential, especially if you look at the next 12-18 months.
John: Yeah.
John: But a lot of upside potential and especially if you look at the next 12 18 months.
Speaker Change: Okay. Thank you that was all for me.
Jonathan P. Faust: Okay, thank you. That was all for me.
John: Okay.
Operator: Operator, we have time for one more question.
Speaker Change: Operator, we have time for one more question.
Speaker Change: Yes. Thank you. Our last question is from a question Schwab Craig Hallum Capital. Please ask your question.
Operator: Yes, thank you. Your last question is from Christian Schwab from Craig Holland Capital Group. Please ask your question.
Christian David Schwab: Hey, Jure, I just have one quick question that hasn't been asked. On the AI machine learning product that you laid out, what percentage of total revenue is that?
Speaker Change: Hey, Gary.
Quick question that I have been asked.
Speaker Change: AI and machine learning.
Speaker Change: The product that you laid out you know if you.
Speaker Change: What percentage of total revenue is all of that.
Jure Sola: Well, in the cloud, you know, we did, communication cloud was about 33% last quarter, about half of that comes from the cloud. We don't break it down like that, but definitely, it's more this quarter than the last quarter, and it will be more next quarter than what we did last quarter. So definitely, it's going in the right direction, and it's really driven by a lot of our customers' new products that are required for upgrades of the data centers.
Gary: Well the.
Gary: In our cloud.
Gary: We did a communications cloud is about 33% last quarter are about half of that comes from cloud, we don't break it down at that but definitely it's it's it's more this quarter than the last quarter. It would be more in the next quarter then.
Gary: We did last quarter, so definitely it's going the right direction and it's really driven.
Gary: A lot of our customers new products that are required for all grades of our of the data centers.
Christian David Schwab: Okay, I guess we have other things in there that I thought you were including in your AI machine learning, but that's okay. So, I guess just to follow up on that, you kind of said that you kind of thought that the optical business would follow the cloud and hyperscale spending. I guess just to follow up to an earlier question, when would you expect, you know, optical spending to show, you know, meaningful improvement from current levels?
Okay.
Gary: I guess, we have other things in there.
Speaker Change: <unk> in your AI and machine learning, but that's okay. So I guess just a follow up on that you kind of said that you've kind of thought that the optical business would follow the cloud hyperscale.
Speaker Change: Strong spending I guess, just a follow up to an earlier question when would you expect.
Speaker Change: Optical spending to show.
Speaker Change: Improvement from current levels.
Jure Sola: Well, I would say let me kind of make a comment on the whole communication sector. I personally believe that we come in and out of that. It's a bad cycle. If I can put it that way, I would expect to see some nice improvement in our fourth quarter. We're going to see some this quarter, but really a lot more in our fourth quarter. And like I said, in the September and December quarters of this year, we definitely forecast that things are looking up in that segment, and then help from a cloud will help move that in the right direction.
Speaker Change: Well I would say, let me kind of make a comment on a whole communications sector I personally believe that.
Speaker Change: We come in end of that.
Pat cycle, if I can play Ah I would expect to see a nice some nice improvement in our fourth quarter, we're going to see some this quarter, but really a lot more in our fourth quarter and.
Speaker Change: And you know like I say in September and December quarter of this year, we definitely forecasts are looking up at him in and in that segment.
Speaker Change: And then help from a from a cloud will help with that in the right direction.
Christian David Schwab: Okay, great. Thanks for all the questions. Thank you.
Speaker Change: Okay, great. Thanks for all the questions. Thank you Christian ladies and gentlemen.
Jure Sola: Ladies and gentlemen, I want to again thank you for your time and your support. If you have any more questions, please get back to us. Otherwise, I appreciate everything, and we'll see you or talk to you 90 days from now. Bye-bye. Thank you.
Speaker Change: Thank you for your time and your support if you have any more questions. Please get back to us otherwise appreciate everything and we'll see you or talk to you in 90 days from now bye bye. Thank you.
Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining us. You may all disconnect.
Speaker Change: Okay.
Speaker Change: Thank you ladies and gentlemen, the conference has now ended thank you all for joining you may all disconnect.