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Edited Transcript of SANM earnings conference call or presentation 27-Apr-20 9:00pm GMT

Q2 2020 Sanmina Corp Earnings Call

SAN JOSE May 12, 2020 (Thomson StreetEvents) -- Edited Transcript of Sanmina Corp earnings conference call or presentation Monday, April 27, 2020 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Hartmut Liebel

Sanmina Corporation - CEO & Director

* Kurt Adzema

Sanmina Corporation - Executive VP & CFO

* Paige Melching

Sanmina Corporation - Senior VP of Marketing & Investor Communications

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Conference Call Participants

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* Christian David Schwab

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst & Partner

* Jim Suva

Citigroup Inc, Research Division - MD & Research Analyst

* Ruplu Bhattacharya

BofA Merrill Lynch, Research Division - VP

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Sanmina Corporation's Second Quarter Fiscal Year 2020 Earnings Call. (Operator Instructions) Please be advised that today's call is being recorded. (Operator Instructions)

I would now like to hand the conference over to your first speaker for today, the Senior Vice President of Marketing and Investor Communications, Paige Melching. Ma'am, please go ahead.

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Paige Melching, Sanmina Corporation - Senior VP of Marketing & Investor Communications [2]

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Thank you, Ian. Good afternoon, ladies and gentlemen, and welcome to Sanmina's Second Quarter Fiscal 2020 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. Let me remind everyone that today's call is being webcasted and recorded and will be available on our website. You can follow along with our prepared remarks in the slides provided on our website.

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 the statements as a result of a number of factors, most notably the ongoing impact of the COVID-19 pandemic, which have and are expected to continue to reduce demand from our customers, interrupt the flow of our components needed for our customers' products, restrict the type of products we can build for our customers and create health risks to our employees. Other factors that could cause our results to differ from our outlook include adverse changes to the key markets we target, significant uncertainties that can cause our future sales and net income to be variable, reliance on a small number of customers for a substantial portion of our sales, risks arising from our international operations and the other factors set forth in the company's annual and quarterly reports filed with the Securities and Exchange Commission.

The company is under no obligation to and expressly disclaims any such obligation to update or alter any of its forward-looking statements made in the earnings release, on this conference call and on our Investor Relations section of our website, whether as a result of new information, future events or otherwise, unless otherwise required by law. You'll note in our press release and slides issued today that we have provided you with a statement of operations for the quarter ended March 28, 2020, on a GAAP basis as well as certain non-GAAP financial information. A reconciliation between the GAAP and non-GAAP financial information is also provided in the press release and slides posted on our website.

In general, our non-GAAP information excludes restructuring costs, acquisition and integration costs, noncash stock-based compensation expense, amortization expense and other unusual or infrequent items. Any comments we make on this call, as they relate 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'd now like to turn the call over to Hartmut Liebel, Chief Executive Officer.

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Hartmut Liebel, Sanmina Corporation - CEO & Director [3]

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Thank you, Paige, and also for me, a warm welcome to our second quarter earnings call. In addition to Paige, here today with me is also Kurt, our CFO. The last weeks have been some of the most challenging in my and perhaps in all of our careers. I'm, in particular, pleased with our exceptional management team. They've stepped up to the plate, managed wave after wave of operational adjustments, taken care of our customers who on average have been with us for 15 years serving mission-critical, high complex end markets. So let me take this opportunity to thank our leadership team and of course, thank you to all of our customers and key suppliers who collaborated with us extremely well in the last few weeks.

With that, let me pass on to Kurt, who will take us through the quarter.

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Kurt Adzema, Sanmina Corporation - Executive VP & CFO [4]

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Thanks, Hartmut. We started off the quarter strong and on track to meet our original outlook. However, as the quarter progressed, we started to be impacted by COVID-19. We first saw this as our employees in China were delayed in returning from Chinese New Year. Secondly, there were delays in our Chinese supply chain, who had been shut down as well and who supply to our operations worldwide as well as the operations of our customers. Thirdly, we saw the impact to the timing and costs associated with the logistics of the supply chain, especially freight.

Finally, in March, we saw the impact of the shelter-in-place and similar restrictions on both our operations as well as the operations of our customers. The fact that many of Sanmina's products are considered essential and as such, are subject to certain exemptions from shelter-in-place or similar restrictions helped mitigate the impact, but we were still impacted.

As a management team, we focused on what we could control, namely, optimization of our cost structure, limitation in new capital expenditures to only the most essential items, and cash generation. With that, I'd like to walk you through the details of the quarter.

If you please turn to Slide 3. Second quarter revenue of $1.6 billion was down 13.6% sequentially and 9.1% lower than the midpoint of our original outlook provided in January. Again, this was primarily due to the impact of COVID-19, as we previously discussed. As you know, we withdrew our original outlook back in March.

Q2 non-GAAP gross margin was 6.9%, down relative to the prior quarter. This was primarily the result of under-absorption due to lower revenue levels, manufacturing inefficiencies and additional costs caused by COVID-19. There were certain limitations based on government mandates in certain geographies, which prevented Sanmina from optimizing our cost base for the lower revenue levels, which we would do in the normal course.

Q2 operating expenses declined relative to the prior quarter to $62.8 million, as we focused on reducing spending as the uncertainty around COVID-19 started to become apparent. Q2 non-GAAP other expenses were approximately $13.5 million. This was up approximately $9.3 million relative to the prior quarter. This was primarily due to a loss of approximately $5.1 million related to deferred compensation assets, primarily as the result of the decline in the stock market and other financial assets in the second quarter. This compares to a gain of $2.0 million in the first quarter.

As a reminder, gains or losses related to deferred compensation assets have no net impact on non-GAAP earnings per share. Deferred compensation gains or losses are equally offset with corresponding increases or decreases in manufacturing and operating expenses. Finally, Q2 non-GAAP fully diluted earnings per share declined to $0.32 due to the impact of COVID-19 on revenue and gross margins.

As the uncertainty related to COVID became evident, we limited new capital expenditures to only the most essential items. Net capital expenditures were approximately $16.4 million in the quarter. Depreciation and amortization was approximately $28 million.

If you now please turn to Slide 4. Here, you can see additional income statement details related to the quarter and the associated comparisons.

If you now please turn to Slide 5, and I will discuss our 2 segments. Both our segments' revenues and gross margins were impacted by COVID-19 relative to our original outlook for the quarter. As you can see on the left, IMS segment revenue declined to approximately $1.3 billion. Non-GAAP gross margins down to 5.8%. On the right-hand side, you'll see Components, Products and Services revenues declined to $327 million. Non-GAAP gross margins were down to 10.6%.

Now please turn to Slide 6. On this page, you can see our revenues by end market. While many of Sanmina's products are considered essential, and such are subject to certain exemptions to shelter-in-place and other restrictions, many of these markets were still impacted by the supply chain disruptions caused by COVID-19.

If you'd now please turn to Slide 7. Our balance sheet remains very strong. Despite the challenging quarter related to COVID-19, we generated approximately $136 million of cash from operations and approximately $119 million of free cash flow. Cash and cash equivalents were approximately $1.1 billion at the end of the quarter.

Towards the end of the quarter, given the uncertainty related to COVID-19, we decided to draw down $650 million of our $700 million revolver. We did not use any of the cash last quarter, and we do not expect to use any of this cash in the third quarter. As I mentioned before, we generated free cash flow in the second quarter and expect to generate free cash flow in the third quarter.

We continue to maintain a low debt-to-cash ratio of 0.9. Our term loan has a balance of $366 million and matures in November 2023. During the quarter, we repurchased approximately 2.4 million shares for approximately $61 million. For the year-to-date, we've repurchased 2.7 million shares and a total of $70 million. We will continue to be opportunistic in repurchasing shares.

Inventory was up approximately $40 million, and inventory turns declined to 6.9. This was due to the manufacturing inefficiencies and disruptions in the supply chain caused by COVID-19. Cash cycle days were 61.7. Non-GAAP pretax return on invested capital was 14.6%.

I would now ask you to turn to Slide 8. Here, you can see additional balance sheet details related to the quarter and the associated comparisons.

Now if you please turn to Slide 9, we'll discuss the third quarter outlook. While our Chinese operations are up and running and the Chinese supply chain is improving daily, we still foresee continued impact to our operations in the third quarter and the rest of the world, although, again, mitigated to some extent by the fact that many of the products we manufacture are considered essential. In addition, there remains uncertainty as it relates to the impact of shelter-in-place and other similar restrictions on our supply chain outside of China as well as on our customers.

The impact of COVID-19 and the macroeconomic environment will continue to evolve as the quarter progresses. Again, as a management team, we will remain focused on what we can control, namely, optimization of our cost structure, limitation on new capital expenditures only to the most essential items, and cash generation.

Our outlook for the third quarter is that revenue will be relatively flat in the range of $1.5 billion to $1.6 billion, reflective of the continued impact of COVID-19. Customer demand for the quarter is expected to be relatively stable with the exception of weakness in automotive.

We expect non-GAAP gross margins will be in the range of 6.4% to 6.9%, as we continued to be impacted by COVID-19. This relates to under-absorption, continued manufacturing inefficiencies and additional costs.

Non-GAAP operating expenses should be approximately $61 million to $63 million. We continue to be focused on reducing operating expenses given macroeconomic uncertainty. We expect non-GAAP operating margin to be in the range of 2.5% to 3%. We expect non-GAAP other expenses to be approximately $10 million. Our non-GAAP tax rate should be around 22%. We expect non-GAAP fully diluted share count to be around 70 million shares.

When you consider all this guidance, our outlook for non-GAAP earnings per share for the quarter is in the range of $0.30 to $0.40. Adjusting for an estimated stock-based compensation of $0.12 per share, GAAP diluted earnings per share is expected to be between $0.18 and $0.28.

Again, we plan to limit new capital expenditures to only the most essential items. We expect capital expenditures to be around $17 million, while we expect depreciation and amortization to be around $28 million.

Finally, despite the continued impact of COVID-19, we expect to continue to generate free cash flow in the quarter. As I sit here today, there are a lot of variables which are changing every day as we manage through the COVID-19 crisis. Not only do I believe Sanmina has navigated through these well to date, I believe we are positioning ourselves well with our customers and our key markets to benefit during the ultimate recovery.

And with that, I'll turn it back to Hartmut for additional comments.

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Hartmut Liebel, Sanmina Corporation - CEO & Director [5]

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Thanks, Kurt. So let me add my comments to what Kurt has outlined. For that, please refer to Slide #11. To set the stage, I think a firm like Sanmina is very much at the center of the COVID-19 crisis. Here's why. To get through these challenges, we need 3 things to work for us to run our business. Number one, we need logistics channels to bring parts into our centers and to ship to end customers. Number two, we need a functioning supply base. We may have 99 parts, but without number 100, which might be a golden screw, you cannot fulfill the order. And number three and probably most important, we need employees to be in the factory, recognizing that some work can be done from remote offices. So we have to manage all 3 so we can produce and ship to end customers. Seeing how our company works through these issues under pressure and uncertainty tells me a lot about the Sanmina team and our company.

Just like other multinationals, for Sanmina, COVID-19 also started in China. There, we have a relatively small presence in 2 key cities. The local teams and our other regional teams rapidly rolled out waves of operational adjustments through our network. By the time the challenges arrived in Europe and Americas, we had learned a lot and were relatively well prepared. The primary responsibility is to keep our employees safe, while building products that our customers need right now.

For example, inside of 1 week, we moved 7,000 associates to set up and work from home. Today, we have ample protective equipment supplies on hand; new protocols how employees enter facilities; social distancing; and we know how to isolate possible infection cases ahead of time in the future. I hear from our customers, they appreciate our transparency and our willingness to share our protocols with our customers to improve their very own procedures.

So far, we've had very few cases that it has been manageable. Obviously, we still experienced major disruption, adding additional costs and inefficiencies that we're working through.

With regard to our supplier base, we greatly enhanced the day-to-day monitoring, including financial strength measurements. We enjoy great collaboration with our customers since certain suppliers are unique to some customers. We experienced some delays and constraints, in particular in the medical space for PPE, monitoring tests in high demand by EMS personnel. But I think overall, this additional layer of transparency and monitoring is making us a better company, and our customers appreciate that.

We experienced similar challenges with freight and cargo. As you all know, due to the drop in passenger traffic, cargo capacity is greatly reduced and very unbalanced worldwide. Freight prices have gone up. Working with clients, we are finding optimal routings. We're expediting for critical paths, especially in COVID-19-related production of test equipment and ventilators. Some clients have entered into partnerships with local or national carriers to accomplish exactly that. We manage the logistics for them, but the limited -- the limited direct financial impact for Sanmina, but delays in timing of delivery of components can impact revenues and the efficiency at the manufacturing plants.

So to me, the last few weeks demonstrated what mission-critical products really mean in real life. For that, please refer to page -- Slide #12. For example, in cities with stay-at-home orders, we quickly documented to local authorities the essential nature of our work. Within days, we could restart manufacturing for many of our customers. This response speed was very much appreciated by our customers. This is really the mission-critical nature of our work. And as our experience showed, this is much more than a marketing slogan.

Next, please refer to Slide #13, where I want to share with you my observations about our end markets. We have limited visibility. However, I believe that our focus markets will be relatively stable to support our guidance with the exception of automotive. As we know, production in the automotive sector has stopped very much worldwide, and it's unclear about the timing and speed when the recovery will occur.

We have some exciting new engagements on the medical side. For example, currently, we're the exclusive manufacturer of a rapid sub-15-minute COVID test that received emergency FDA approval. So this is a very exciting development to be part of.

For your many local police stations, fire departments and EMS personnel, we build communication systems that allow frontline managers to respond with speed and confidence even if the public networks are overloaded or down during emergencies.

Our optical network customers are quite optimistic about their order book as communication bandwidth constraints is now something all of us can relate to almost daily.

And finally, the defense industry's core demand is intact. Again, this is with relative stability, recognizing that our customers and ourselves have to continue to work through supply chain logistics and personnel challenges. But hopefully, those will be gradually coming down in the weeks and quarters ahead.

So where do we go from here? And what do I see happening in the near future as I kind of look around the corner? For that, please refer to Slide #14. As you can see from the actions we have taken, we focus on protecting the institutional strength of Sanmina. That is our strategic customers, our people and our partner network. So we're staying very, very close to our customers. Based on our performance so far, I believe that they have great confidence in our management team and our approach. In turn, it gives our customers the confidence to partner up with Sanmina even stronger when things go -- do recover.

And I think overall -- kind of the overall secular industry trend, with this partner network consolidation, fewer partners than more, closer to end markets, more regionalization, those trends are firmly intact. And I think they also play into our strength. For example, as relates to regionalization, we've always been organized along those lines.

We service leading-edge technology customers where we provide first, flexibility; second, speed to meet end-market demand; and third, best total value for our customers. That has been our success formula in the past, and I believe it also holds true tomorrow.

So if I may recap today's call, and for that, please refer to Slide #15, which is the last slide in our deck. In Q2, we really focused, obviously, on taking care of our people. Revenue and margins were significantly influenced by COVID-19. We focus on what we can control: Free cash flow, where we generated nearly $120 million and finished with an industry-leading balance sheet strength, with a cash balance of $1.1 billion.

In terms of the outlook for Q3, we anticipate a revenue range of $1.5 billion to $1.6 billion, non-GAAP EPS of $0.30 to $0.40, and we expect to be free cash flow positive. While we're streamlining our operations so that we're prepared for any market challenges, we're also focused on being prepared so that when the recovery kicks in, we are ready to go and go to meet increased demand.

Our seasoned management team is on top of things and has demonstrated enormous resilience. This is the same management team that worked through 2008, with a difference that today, we have a much stronger balance sheet. Every reset or shock to the system is different, but can also create opportunities. I think we have some very exciting years ahead of us.

Again, I want to express a big thank you to all of our employees around the world, to our supplier partners, and thank you to our shareholders and investors for your long-term support.

With that, Ian, we can open it up for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question is from the line of Ruplu Bhattacharya from Bank of America.

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Ruplu Bhattacharya, BofA Merrill Lynch, Research Division - VP [2]

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You're giving guidance for the next quarter, and I think that's great. I'm just a little surprised because there is a lot of uncertainty and a lot of your competitors have also not given guidance. So maybe if you can just touch on at a high level, what are some of the things that are giving you confidence to give the guidance? And it looks like a fairly tight guidance on revenues of the range of about $100 million. So what are some of the things that are giving you confidence enough so that you can guide the June quarter?

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Hartmut Liebel, Sanmina Corporation - CEO & Director [3]

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Sure. Thanks, Ruplu. Good question. I think it's somewhat reflective of the nature of the customer relations we have. We are -- we always are in close contact with our customers and probably even more throughout different levels of our organization, even more these days with our customers. And so that's very much the feedback we're hearing from them. That combined with a pretty robust bottoms-up forecast, we thought that -- based on that, we feel it would be appropriate to give our estimate for -- of what Q3 would look like at this point based on the available information to us.

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Ruplu Bhattacharya, BofA Merrill Lynch, Research Division - VP [4]

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Yes. No, certainly, we appreciate that, and it's at least a good guidance framework for us. Maybe for my second question, if I can ask, I think you're guiding flat from an end market demand standpoint, except for automotive for the next quarter. So I was wondering if you can just drill a little bit deeper into the communications network. What did you see in that end market in fiscal 2Q in networking, optical or wireless? And are the same trends continuing? So when you say flat, are all of these end markets more or less trending the same as you saw in the last quarter?

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Hartmut Liebel, Sanmina Corporation - CEO & Director [5]

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Yes. I think on the communications side, I think there are some puts and takes of what -- I think what the end market or our customers are kind of thinking through. On the one side, obviously, they're dealing with very similar supply chain and employee and readiness challenges that I described also in our call and that you've heard from them directly. At the same time, they see actually market opportunities to grow this space. So -- in terms of increased communication demand, increased bandwidth demand, increased storage demand and so on. And -- so I think that's why in balance, I think our end customers in the communications space, they are -- they are reasonably optimistic about the outlook for this space. And that's why those put and takes, they kind of balance each other out. That's why -- that's why we would call this space right now stable and supporting kind of our guidance right now.

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Ruplu Bhattacharya, BofA Merrill Lynch, Research Division - VP [6]

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Okay. And for my last question, I'll focus on margins. I think you reported gross margin of 6.9%. You mentioned additional costs associated with COVID-19. How much was that in the quarter? And how should we think about additional costs associated with COVID-19 in fiscal 3Q? And it looks like from the guidance, you're guiding a gross margin down somewhat because it's the guidance, if I heard correctly, was 6.4% to 6.9%. So what are some of the puts and takes that are impacting gross margin in fiscal 3Q?

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Hartmut Liebel, Sanmina Corporation - CEO & Director [7]

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Kurt, you maybe want to take that call? That...

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Kurt Adzema, Sanmina Corporation - Executive VP & CFO [8]

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Sure. So again, I mean, I think there are a lot of variables that are interrelated as it relates to margin. I mean obviously, it starts with volume. And volumes last quarter were down relative to the prior quarter and down relative to expectations. I think Sanmina has a history of adjusting pretty quickly to those things. But I think given a lot of the uncertainty and the speed of how the coronavirus or COVID rolled out, I think that was problematic. And I also think, again, as I mentioned in my earlier remarks, there're some restrictions in certain geographies in terms of what we're able to do to reduce costs. But certainly, under-absorption is a key thing.

Inefficiencies, again, as you think about it, inefficiencies associated with not having everybody in the factory, or inefficiencies associated with having everybody in the factory but not necessarily having all the parts you need. And then when the parts show up, you've got to work over time to pick things up. And then additional costs, I think, Hartmut talked a little bit about freight and some other things. So they're all intertwined. I think the way I would think about it is we had guided gross margins in kind of the mid-7s range for the outlook. And I think without COVID-19, I think we would have been in that range based on our strong start to the quarter. So you're probably looking at a 50 to 60 bps impact as a result of all those factors and COVID-19.

As far as Q3 goes, we're going to see a lot of those. Some of them are going to be different, right, because we won't have, let's say, the shutdown that we had after Chinese New Year in China. But at the same time, we've got a fuller impact in, let's say, the automotive business or some of the shelter-in-place stuff that didn't come into effect towards the end of Q3 -- or excuse me, at the end of Q2, that may be in effect for longer in Q3. So I think you're going to see a lot of the same factors. And I think that's why roughly margins are flat to slightly down on relatively flat revenue.

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Operator [9]

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Our next question is from the line of Christian Schwab from Craig-Hallum Capital.

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Christian David Schwab, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst & Partner [10]

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Great. On the supply side dynamic issues, can you quantify the difference between or call out any parts that have caused disruption? Or is it really just kind of travel logistics to get them?

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Hartmut Liebel, Sanmina Corporation - CEO & Director [11]

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Yes. Christian, good question. It's really so widespread, it's very much -- the profile that we described of how we had to work through here at Sanmina filters very much down to all of our supply base. And so it's -- I think everybody across the board at various levels of success to get ready again. It, again, depends by location, depends by the region. And we've worked very, very closely with that supply base to make sure that when we have the authority to -- that we can receive from our customers to be up and running under local government regulations, we made sure that our suppliers had those too. So there was a lot of great collaboration, but I don't think I would limit it to a particular commodity. It was very, very widespread.

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Christian David Schwab, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst & Partner [12]

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Okay. And then as we think about the second half of the calendar year, what are the puts and takes? You talked about stability in the customer base, except for automotive this quarter June. What are the puts and takes that we should be monitoring the closest, or you're monitoring the closest, to kind of anticipate what the second half of the calendar year could look like?

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Hartmut Liebel, Sanmina Corporation - CEO & Director [13]

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Yes. It's -- it's those 3 factors that we're trying to balance here and optimize and that is employee readiness that still -- there's still some adjustments even today on a day-to-day basis, making sure that when the recovery comes back, we have the right protocols in place for employees to come back at different intervals; really ensuring that we're optimizing our logistic partners and accelerate when parts come into a facility; and then being very, very close to our supply base partners. So it's that optimization so that we are ready when and -- when the recovery kind of sets in.

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Christian David Schwab, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst & Partner [14]

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Great. And my last question, you guys expressed some customer optimism in optical kind of given bandwidth issues globally. Is there any other silos of -- or pockets of strength that semi cap equipment -- I think you have a small exposure there, but is there any other pockets of strength that you're pleasantly surprised by?

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Hartmut Liebel, Sanmina Corporation - CEO & Director [15]

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Yes. No, it's -- I think it's kind of right now, it's a bunch of puts and takes. That's why -- that's why we kind of call the outlook for our end markets and as it relates to our Q3, kind of call it stable, right? And to be seen in the next several weeks, if some of those end markets maybe accelerate earlier than some others. The optimism that all of us have in 5G rollout and the timing around that, I think that's still intact. But to be seen, like how the short-term issues is impacting the timing around that. Kurt, anything else on that note?

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Kurt Adzema, Sanmina Corporation - Executive VP & CFO [16]

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No, I think that's good.

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Hartmut Liebel, Sanmina Corporation - CEO & Director [17]

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Yes.

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Operator [18]

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(Operator Instructions) Our next question is from the line of Jim Suva from Citigroup.

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Jim Suva, Citigroup Inc, Research Division - MD & Research Analyst [19]

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Yes, I have covered Sanmina for a very long time, and your company has done a lot with diversifying across the various end markets compared to what it was a decade or 2 ago. But if I look back, the last time when there was a big oil crisis, I recall Sanmina had some receivable collection issues and customers. So are you reserving a little bit more allowance for uncollectible accounts? Or have your collections been pretty sufficient the past few years where you have enough buffer should it need to be some challenges in those various end markets -- not just oil and gas, but small businesses, private businesses, you may have trouble with fundings?

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Kurt Adzema, Sanmina Corporation - Executive VP & CFO [20]

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Sure. Good question. Certainly, we have a very robust process every quarter looking at our outstanding accounts receivable, in particular, focusing on amounts that are either past due or companies that financials are a bit challenged. I would say for the quarter that we were in, our collections were actually in line with what we would normally expect. And so, so far, we haven't seen any impact of that. Certainly, it's something we're monitoring and probably looking closer at than you normally would. Although, again, we have a very robust process normally as well. So no evidence of that yet, but certainly something we're keeping an eye on.

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Jim Suva, Citigroup Inc, Research Division - MD & Research Analyst [21]

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Great. And my follow-up question is, you mentioned strength in optical. Is that like accelerated strength beyond then what you maybe thought 3 months ago or so? Or is it a strength in optical relative to just the macro economy slowing? The reason why I ask is some people are talking about the need for a better optical for enterprise and work-from-home in those type of solutions. So I'm wondering if it's actually an acceleration. Or is it just simply it has just performed stronger relative to the overall economy, which would -- given coronavirus, it's no one's fault, it's simply just the world that we live in today?

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Hartmut Liebel, Sanmina Corporation - CEO & Director [22]

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Jim, good question. But let me clarify my earlier comment. I said even in communications, the puts and takes kind of cancel each other out. There's obviously long-term optimism for 5G, but even our communications end market is working through the same supply chain, employee, logistic challenges here. And that's exactly the reason why I characterized even the communications market as stable, supporting our guidance. So I don't see any like extreme optimism, but I'd like to characterize this as stable. And I think in the current environment, that's almost a good thing to have.

So operator, and Ian, we have time for one more question. If there's one more question out there, we're happy to take that.

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Operator [23]

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(Operator Instructions) And at this time, I'm showing that we have no other questions in the queue.

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Hartmut Liebel, Sanmina Corporation - CEO & Director [24]

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Thank you, Ian. So let me just take a moment here. On behalf of our entire management team, I want to thank all of you for attending today's call. Thank you for the insightful questions. And I hope that you and your family and your team members will stay healthy. We very much appreciate your long-term support of Sanmina and look forward to speaking to you the next time, which will be our Q3 earnings call. Thanks again, and goodbye.

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Operator [25]

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Ladies and gentlemen, this concludes today's conference call. We thank you greatly for your participation. You may now disconnect.