Molex Incorporated F1Q10 (Qtr End 09/30/09) Earnings Call Transcript

Transcript by:

Molex Incorporated (MOLX)

F1Q10 Earnings Call

October 27, 2009 5:00 pm ET

Executives

Steve Martens - Vice President of Investor Relations

Martin Slark – CEO

Dave Johnson – CFO

Analysts

Brian White – Ticonderoga

Craig Hettenbach – Goldman Sachs

Matt Sheerin – Thomas Weisel

Shawn Harrison – Longbow Research

William Stein – Credit Suisse

Jim Suva – Citi

Steven Fox – CLSA

Amitabh Passi – UBS

Wamsi Mohan – Bank of America/Merrill Lynch

Ryan Jones – RBC Capital Markets

Sean Conner – FAF Advisors

Presentation

Operator

(Operator Instructions) Welcome to the Q1 2010 Molex Incorporated Earnings Conference Call. I would now like to turn the call over to Mr. Steve Martens, Vice President of Investor Relations.

Steve Martens

I’m joined on the call by Martin Slark our CEO, and Dave Johnson our CFO. Please note that this call is being recorded and will be available for replay by accessing the Investor Relations section of our website. The presentation materials are also available on the website. As usual, we would like to limit the call to an hour. When we get to Q&A we ask one question per participant and one follow up question. Thank you.

Before we turn our attention to the quarterly results, let’s review our Safe Harbor statement, which are slides one and two of the presentation materials. During the course of this presentation we will be providing forward looking information and referring to non-GAAP measures. Please read carefully the forward looking statement section of our press release, Form 10-K and the related slide presentation for an understanding of the risks and uncertainties associated with forward looking information and the reconciliation of non-GAAP measures to GAAP. For your convenience, we have included these materials in our presentation. They are also available from our website www.Molex.com in the investor section.

Now Martin will review order and revenue results for the quarter.

Martin Slark

If you could now turn to page three, I’ll talk about our order trend over the last quarter. Following a 20% sequential increase in new orders that we saw in the June quarter, we had a further 26% sequential increase in the September quarter. At $724 million, our Q1 bookings are 52% above the bookings recorded in the March quarter, but are still down 9% from the same quarter last year. Molex has traditionally shown good strength coming out of economic downturns, relative to our peers in the industry we have now had two sequential quarters of very strong increases in bookings.

The external factors driving these bookings increases are, we believe, some restocking that has taken place as a result of a very severe inventory correction during the first half of this calendar year. The impact to stimulus packages including not just the “Cash for Clunkers” programs in North American and Europe, but also government incentives in Asia, which have impacted consumer spending and pre-Christmas builds of new consumer goods. Internally, we also believe that our focused customer program, our broad base of technology, and our new global structure, are helping us to win new business across a broad spectrum of end markets.

If you would not turn to page four, I’ll go through our change in orders by industry segment. We were very encouraged to see that plus or minus a couple percentage points, really a 25% sequential increase in bookings in every one of our major end markets, certainly our bookings recovery is very broad based. If you look at the automotive bookings they were up 26% sequentially driven by the incentive schemes that were put in place in the US and Europe. Following the suspension of these programs we have continued to see inventory rebuilds and automotive bookings have remained strong through October.

The latest revised forecast for North American markets for calendar year ’10 is Automotive build could approach 12 million cars this year, which is still down significantly from the normal run rate of 15 to 16 million but is certainly significantly above the nine million run rate that we saw during the fourth quarter of last calendar year. China is now the largest market in the world for cars and we have seen terrific progress selling standard products to a number of end customers in the Chinese market.

The increased electronic content in vehicles, particularly in entertainment and telematic applications, is driving increased electronic content within the vehicle. These applications are delivering consumer based services such as location based services, turn by turn directions, internet radio, satellite TV, and many other two way communications to the vehicles. We also view the trend towards hybrid vehicles and electric vehicles as positive for connector content.

Looking at the Data markets, our business was up 24% sequentially and is now above the level where it was a year ago. We believe we are seeing the benefit of deferred enterprise spending which really started in the post-tech bubble era. As a result, we have seen good improvement in the network storage and service segments. In addition to the needs to replace aging hardware, the trend toward increased video downloads or mobile access of data, are driving increased spends. Our Data business was particularly strong in Asia, where our new high speed products are gaining significant customer acceptance.

Looking next at the Telecom market, we saw a 26% sequential increase in bookings. Our handset business, which saw possibly the largest inventory correction in the first half of this year, saw a 27% sequential improvement. The driving factor in the handset market is a rapid growth of Smart Phones. We estimate if you look this calendar year, about 70% of the new phones released by many of the suppliers in this segment, have been Smart Phones. This is clearly the growth story in this segment.

By the end of 2009 we estimate there’ll be 4.6 billion mobile subscribers on a global basis and almost 600 million broadband mobile subscriptions. Mobile broadband in 2009 overtook fixed broadband. The increased availability of mobile broadband is driving mobile conversions, increased sales in notebooks and e-readers. We are anticipating a further sequential increase in the mobile market in the fourth quarter this fiscal year, driven by some positive seasonal effects, combined with new model launches. Launches of Android models will be a positive for Molex, not just for our connector business, but also our antenna business.

Read the rest of this transcript for free on seekingalpha.com