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Sanmina Corp  (NASDAQ:SANM)
Q4 2018 Earnings Conference Call
Oct. 29, 2018, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Erica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sanmina Corporation's Fourth Quarter Fiscal 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions).

Thank you. Ms. Paige Bombino, Vice President of Investor Relations, you may begin your conference.

Paige Bombino -- Vice President of Investor Relations

Thank you, Erica. Good afternoon, ladies and gentlemen, and welcome to Sanmina's fourth quarter and fiscal year 2018 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 and the slides provided on the website.

Safe Harbor statement. During this conference call, we may make projections or other forward-looking statements regarding future events or future financial performance of the company. We caution you that such statements are just projections.

The company's actual results of operation may differ significantly as a result of various factors including adverse changes to the key markets we target, significant uncertainty 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, risk arising from our international operations, finalization of a matter of adoption of the new revenue recognition standard and other factors set forth in the company's annual and quarterly reports filed with the Securities and Exchange Commission.

You will note in our press release and slides today, that we are providing you with statements of operations for the quarter and fiscal year ended September 29th, 2018, 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 the website.

In general, our non-GAAP information excludes restructuring costs, acquisition and integration costs, non-cash stock-based compensation expense, amortization expense, and certain other infrequent and unusual items to the extent material.

Any comments we make on today's 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 would like to now turn the call over to Jure Sola, Executive Chairman of the Board, Jure?

Jure Sola -- Executive Chairman

Thanks, Paige. Good afternoon, ladies and gentlemen. Welcome and thank you all for being here with us. With me on today's conference call is David Anderson, our Chief Financial Officer, who will review our financial results for the fourth quarter fiscal year 2018 and outlook for our first quarter of fiscal year 2018.

David Robert Anderson -- Executive Vice President and Chief Financial Officer

Good afternoon, everyone.

Jure Sola -- Executive Chairman

And also with us here is Michael Clarke, Sanmina's new Chief Executive Officer.

Michael Clarke -- Chief Executive Officer

Good afternoon.

Jure Sola -- Executive Chairman

Michael will talk about his view of Sanmina opportunities and the future. Before I turn this call -- this conference call over to David and Michael, I would like to add few highlights. Michael joined us on October 1st, I can tell you that Michael hit the ground running, reviewing Sanmina business opportunities immediately.

Michael's breadth of industry experience and specific knowledge of Sanmina's management team and capabilities are invaluable to the strategic direction of Sanmina and our future performance. I'm pleased to welcome Michael back to Sanmina management team and Sanmina team leader.

Michael, welcome.

Michael Clarke -- Chief Executive Officer

Thank you, Jure.

Jure Sola -- Executive Chairman

Please turn now to slide three. Let me give you some highlights for the fourth quarter. We delivered the respectable results for a fourth quarter, revenue for the fourth quarter was $1.88 billion at the high end of our outlook, driven by strong demand across majority of our end markets.

Non-GAAP diluted earnings per share was $0.67. I can tell you that things are moving in the right direction. During the fourth quarter, we had a strong demand, better mix of business and our ability to drive efficiencies across a number of our operations.

And now I can tell you that Sanmina is repositioned to get back to their 4% plus operating margin in the future, I would say in the near future. Additional few comments for fiscal year 2018. Fiscal 2018 was a disappointing year, while second half of the year was stronger than the first half. I can tell you that we finished strong, and for the year, we delivered $7.1 billion in revenue up 3.5% year-over-year.

The most important is where do we go from here. So let me make a few comments about fiscal year 2018, while we anticipate supply environment to remain constrained, at least through first half of the calendar year 2018, we are making continuous improvements in our operating efficiencies across all of our businesses, and we are continuing to drive improvements in areas we can control.

Sanmina has continued to see strong demand. Overall, our customer base is positive about the fiscal year 2018. Our Company is focused on quality of the growth for fiscal year 2018 and beyond, and I can tell you that we are confident that fiscal year 2018 will be a lot better year.

Again, I am very excited about Sanmina's future under Michael's leadership. Ladies and gentlemen, now I would like to thank you all for your support. I will turn this call over now to David Anderson, Sanmina's, Chief Financial Officer. David?

David Robert Anderson -- Executive Vice President and Chief Financial Officer

Thanks, Jure. Please turn to slide four. Overall, as Jure mentioned previously, our fourth quarter revenue and non-GAAP diluted earnings per share exceeded our expectations. Revenue was at the high end of our outlook at $1.88 billion, and non-GAAP diluted earnings per share at $0.67 was above the midpoint of our outlook.

Revenue was up 3.5% sequentially or $63 million and up 6.9% or $121.3 million from the fourth quarter of last year. Fiscal 2018 revenue ended at $7.11 billion, up 3.5%, with second half's revenue stronger than the first half. Revenue was up sequentially and on a full year basis across the majority of our end markets. I will discuss our end market performance in more detail in a few minutes.

From a GAAP perspective, we reported net income of $5.4 million, which resulted in diluted earnings per share of $0.08 for the fourth quarter. This was down $0.39 sequentially and $0.25 from Q4 of last year.

The sequential drop in GAAP diluted earnings per share, largely resulted from a $30.6 million non-cash goodwill impairment, and a $12.2 million increase in restructuring costs that was partially offset by a $5.6 million reduction in stock compensation expense. The $30.6 million in non-cash goodwill impairment resulted from our annual asset impairment review, where one of our business units, current fair value of its assets was lower than book value.

Also, as I pointed out during our Q3 earnings call, we had a $4.8 million reversal of an accrual for contingent consideration in Q3. For the year, we had a GAAP net loss of $91 million, a reduction of $230 million from fiscal 2017, that was largely driven by a $161.1 million impact on our income tax provision, which was due to the enactment of the US Tax Cuts and Jobs Act in December of 2017, the restructuring actions previously announced in January and the non-cash goodwill impairment charge recorded in the fourth quarter.

Accordingly, GAAP diluted earnings per share for fiscal 2018 was a negative $1.30 versus a positive $1.78 last year. My remaining comments will focus on the non-GAAP financials for the fourth quarter and fiscal 2018.

At $129.7 million, gross profit was up $13 million from the prior quarter. Gross margin came in at 6.9%, which was 50 basis points higher than we reported in Q3. For the full year, gross profit was down $55.3 million and gross margins were down 100 basis points, a major disappointment.

I will discuss our gross margins in more detail when I review our segment results. Operating expenses were up $2.8 million for the quarter at $65 million. Our operating expenses were contained at the low end of our outlook, even with increased incentive expenses that were largely tied to our better fourth quarter results.

As a percentage of sales, operating expenses were up 10 basis points, largely driven by the increased incentive compensation. For fiscal 2018, operating expenses were up $1.1 million, basically flat with fiscal 2017. This resulted in a 10 basis point reduction in operating expenses as a percentage of sales. At $64.7 million, operating income increased by $10.3 million from the prior quarter, up 18.9%, and was up $3.6 million or 5.9% from Q4 of last year.

Operating margin was 3.5%, which was 50 basis points -- up 50 basis points sequentially at the midpoint of our outlook and flat to Q4 of last year. Other income and expense of $6.9 million was up $1.1 million when compared with last quarter and up $3.5 million from the fourth quarter of last year. The tax rate for the quarter was 17% of pre-tax income, which was slightly better than our expectations. For the full year, the tax rate was 17.7%.

We earned $48.1 million in net income with our non-GAAP diluted earnings per share coming in at $0.67, which was above the midpoint of our outlook for the fourth quarter. Non-GAAP diluted earnings per share was up $0.12 or 21.3% from Q3, and up $0.03, or 4.8% from Q4 of last year. This was based on 71.5 million shares outstanding on a fully diluted basis for Q4.

For fiscal 2018, non-GAAP diluted earnings per share of $2.21 was down $0.66 from fiscal 2017, a decrease of 23%. This was a major disappointment that was partially driven by operational costs and inefficiencies resulting from the ongoing supply constrained environment and new program ramps during fiscal 2018.

Please turn to slide 5. I will now give you some color around our end-market segments for the fourth quarter. Communications networks was $690.3 million or 36.8% of revenue. This was up 2.6% sequentially and down 3.3% year-over-year. The sequential growth in communications was above our expectations for the fourth quarter.

Industrial, automotive defense with $664.2 million or 35.4% of revenue for the quarter. This was up 4.7% on a sequential basis and up 10.2% compared to the same period a year ago. All three areas grew on a sequential basis, which was in line with our expectations.

Medical was $335.1 million or 17.9% of revenue, this was up 11% sequentially and up 39.7% compared to the same period a year ago. Medical grew sequentially in line with our expectations. Cloud Solutions consists of cloud computing, storage systems, point of sale, casino gaming and set-top boxes. This segment was $186.8 million or 9.9% of revenue for the fourth quarter. It was down 8.4% sequentially and down 6% compared to the same period a year ago.

This was below our expectations for the fourth quarter, largely due to the delay in ramping shipments to our new Tier 1 cloud service provider.

Please turn to slide 6. For the full year, Communications was $2.7 billion or 37.8% of sales. This was up 1.3% compared to fiscal 2017. Optical and networking continues to be the largest -- the largest portion of the Communications segment, while wireless continues to be in the transition phase from 4G to 5G. In fiscal 2018, the Industrial, Automotive, Defense and Market segment had revenue of $2.52 billion or 35.4% of sales.

This was up 2.6% compared to fiscal 2017. Defense and Automotive largely drove this growth. Medical was $1.16 billion or 16.3% of revenue for the full year. This was up 23.7% compared to fiscal 2017. Medical products have a long life -- long sales cycle, a long qualification cycle and a long product life cycle. Growth in this segment is largely attributed to new programs won a couple of years ago that ramped production in fiscal 2018, as well as increased demand from existing programs.

Please turn to slide 7. The Integrated Manufacturing solution segment represents printed circuit board, assembly and test, final system assembly and test as well as direct order fulfillment. As you can see from the graph on the left, the IMS segment revenue was up $64 million from last quarter at $1.55 billion.

Our gross margin increased by 60 basis points from Q3 to 6.3%. This was largely driven by the revenue growth, improved operational efficiencies as various programs ramped to volume production and better revenue mix.

On the right is our second segment; Components, Products and Services. Components include, printed circuit board fabrication, backplane assemblies, cable assemblies, and closures, precision machining and plastic injection molding.

Products include computing and storage products, defense and aerospace products, Memory & SSD Modules as well as optical and RF modules. Services include design and engineering as well as logistics and repair services.

In aggregate, the revenue for this segment was up $7 million to $382 million with gross margin down 20 basis points from Q3 to 8.2%. The CPS segment gross margin was negatively impacted by a sequential decline in the products business that was mostly offset by a sequential improvement in our components and services businesses.

The components improvement was largely due to the shutdown of production in our Owego, New York plant in early July. We expect components to continue to improve in Q1. Please turn to slide 8, here we are showing you the quarterly trend in our key, non-GAAP P&L metrics. Revenue was up 3.5% from last quarter and up 6.9% over Q4 of last year to $1.88 billion.

Gross profit increased 11.2% from last quarter to $129.7 million. Gross margin at 6.9% was up 50 basis points from last quarter. Our operating profit increased 18.9% from last quarter to $64.7 million. This led to our operating margin of 3.5%.

We saw an improvement in our operating margins in Q4, in line with our expectations and we expect to continue to drive toward our goal of getting operating margins back to the 4% range as quickly as possible. Non-GAAP diluted earnings per share grew 21.8% sequentially to $0.67. As you can see on the bottom right corner of this chart, we've been driving our non-GAAP diluted earnings per share to higher levels since the trough in Q1 and we expect to continue this upward trend into 2019.

Please turn to slide 9. Our balance sheet remains strong. Our cash and cash equivalents were $420 million at the end of the year, cash was up $15 million from the previous quarter, accounts receivable was up $23 million and inventory was up $176 million. We'll talk about inventory in a moment.

From a liability standpoint, we had a $181 million increase in accounts payable during the quarter, which basically offset the increased inventory from a cash flow perspective. Our short-term debt was down $18 million from last quarter, our short-term debt includes the $375 million notes due in June of 2019 that are classified as current on the balance sheet.

In the fourth quarter, we repurchased $7.3 million worth of common shares. Specifically, we repurchased approximately 240,000 shares at an average share price of $29.73. During fiscal 2018, we repurchased 5 million shares for $145.4 million, an average share price of $29.03. We have approximately $108 million available under our Board authorized share repurchase plan.

As of the end of the quarter, we had $14 million in long-term debt and our gross leverage was approximately $2.15 million, based on our total debt. We are working on the refinancing of the $375 million in debt that is due in June of 2019.

Overall, our balance sheet and capital structure remain in great shape. Please turn to slide 10. Here we are showing you the quarterly trend in our balance sheet metrics. Cash was consistent with prior quarters in the $400 million range. Cash flow from operations for the quarter was positive at $60.5 million and net capital expenditures for the quarter were $20.6 million.

Net capital expenditures for the full fiscal year was $114.2 million, which ran under our expected range of $125 million to $130 million that we mentioned during Q3's earnings call. We ended up with positive free cash flow of $39.9 million, which was basically flat with Q3. While we are pleased that we once again generated positive free cash flow for the quarter, we are still not satisfied with our progress in reducing our inventory.

For the full year, we generated cash flow from operations of $156.4 million and free cash flow of $42.3 million. Our cash generation for the full year was largely impacted by the buildup in our inventory to support our customers' requirements during the supply constrained environment.

Inventory dollars were up $176 million from last quarter to $1.36 billion. Inventory turns were 5.5x down, 0.4x of a turn from Q3, compared to Q4 last year, inventory turns were down 0.7 turns with inventory dollars up $311 million. Inventory continues to be a challenge, largely driven by ongoing material shortages on certain commodities such as resistors, capacitors and discrete semiconductors.

As Jure indicated, we anticipate supply environment will remain constrained at least through the first half of calendar 2019. We continue to work with our customers and suppliers to maximize the fulfillment of our customers' demand requirements, while also working on addressing our elevated inventory levels and the impact on our cash flow.

We also expect to make continued improvements in our operational efficiencies and materials execution in the areas that we can control in spite of the supply constrained environment. In the lower left quadrant, we are showing cash cycle days which combines our cycle time for inventory, accounts receivable and accounts payable.

Overall, despite the continued impact of the supply constraints on our inventory, cash cycle time decreased from 48.5 days last quarter to 47.3 days in Q4, a 1.2-day improvement. This change was mainly driven by an increase in our accounts payable days outstanding that more than offset the increase in our inventory days.

On a full year basis, our cash cycle days were up from 42.8 days in Q4 of last year to 47.3 days in Q4 of this year.

Finally, pre-tax ROIC increased by 3.2 percentage points to 19.4% from the prior quarter. Compared to the fourth quarter of last year, pre-tax ROIC declined 0.5 percentage points. Before I address our first quarter outlook, I want to point out that beginning in our first quarter fiscal 2019, Sanmina is adopting on a modified retrospective basis, the new revenue recognition standard referred to as ASC 606.

While we do not expect the adoption of ASC 606 to materially impact our revenue and earnings per share, our Q2 -- Q1 2019 outlook does include the expected impact from the adoption of this new revenue recognition standard. Please turn to slide 11. I will now share with you our outlook for the first quarter of fiscal 2019.

Our view is that revenue will be in the range of $1.875 billion to $1.925 billion. GAAP diluted earnings per share will be between $0.57 to $0.63, this includes estimated stock-based compensation expense of $0.10 per share and amortization of intangible assets of $0.01 per share. On a non-GAAP basis, we expect that gross margin will be in the range of 7.1% to 7.5%.

Operating expense should be $66 million to $68 million. This leads to an operating margin in the range of 3.5% to 4%. We expect that other income and expense will be in the range of $8 million to $9 million. Our tax rate should be around 18%, and we expect our fully diluted share count to be around 71.5 million shares plus or minus 0.5 million shares.

When you consider all of this guidance, we believe that we will end up with non-GAAP earnings per share in the range of $0.68 to $0.74. For your cash flow modeling, we expect the capital expenditures will be around $40 million, while depreciation and amortization will be around $30 million.

While net capital expenditures in our first quarter of 2019 are expected to be higher than in the last 3 quarters, we expect net capital expenditures for 2019's fiscal year to remain in our most recent historical range of $110 million to $120 million.

We expect to once again generate positive cash flow from operations in Q1. Overall, we delivered respectable results in the fourth quarter. Our revenue was at the top end of our outlook and up 3.5% sequentially. We were at the midpoint of our outlook on operating margins of 3.5%. We generated $0.67 of non-GAAP diluted earnings per share slightly above the midpoint of our outlook for Q4 and we generated positive cash flow from operations and free cash flow in line with our expectations.

Obviously, we are disappointed with our results for fiscal 2018. While the second half of the year was better than the first half, we did not deliver on our commitments and did not generate consistent, sustainable profitable growth and cash flow. As we move into 2019, I believe we are heading in the right direction by focusing on, first, getting back to our historical 4% operating margin range, which will help us generate higher levels of non-GAAP diluted earnings per share and cash flow for our investors.

In closing, let me give you my thoughts on my new boss, Michael. I am personally excited that Michael has rejoined Sanmina, I worked with Michael when he was previously with Sanmina and during his tenure on Sanmina's Board. He has a depth of knowledge of both the EMS industry and Sanmina that I think will go a long way to helping us achieve higher levels of customer, supplier and employee satisfaction, as well as create enhanced shareholder value.

I congratulate Michael on his new role as Sanmina's CEO and will now turn it over to him for further comments on our outlook for 2019.

Michael Clarke -- Chief Executive Officer

Thank you so much, David. I appreciate that. Could you please turn to slide 12?

Good afternoon everybody and thanks for joining the call. I'm so excited to be here and to be a part of the Sanmina team leading it to a higher level of performance and positioning going forward. I look forward to working with my Sanmina colleagues across the globe, to tackle this and many exciting opportunities we have in our chosen markets and continue our tradition of exceeding the expectations of our customer while achieving maximum shareholder value.

I am privileged to have the support, guidance and knowledge from Jure in his role as Executive Chair as we work closely in the strategic direction of Sanmina. Thank you, Jure.

Jure Sola -- Executive Chairman

Welcome Michael.

Michael Clarke -- Chief Executive Officer

In my 4 weeks on the job, I have had the opportunity to take a detailed look at the business and my initial observations of Sanmina is great. We have much to offer. I'm impressed with our technology capabilities, which I think is second to none, position in our chosen market with great customers, a global footprint with stable, talented and experienced team of employees.

However, that being said, I cannot ignore the poor financial performance in the past year or so, which is being well below our expectations on many fronts. My primary focus going forward will be on the optimizing execution and operational consistency of all the business units, while positioning our path going forward in markets we choose to serve and the products we produce.

Sanmina has a lot to offer its customers, employees and shareholders alike. We have world-class partner, a great environment to work, yet we need to have consistency and predictable results. I am personally up for the challenge and excited about the future.

Please turn to slide 13. To align our strategy of pursuing new, higher system complexity and heavily regulated market, we have decided to combine the industrial, medical, defense and automotive end markets. On this slide, we provide you with the old breakdown, and how it looks under the new classification.

Please turn to slide 14. David provided you folks with the outlook for our first quarter fiscal 2019, and I'd like to provide you some more color around the end markets that gives us confidence in our ability to achieve these outlooks.

The communication network and market is expected to be up sequentially, we continue to be challenged however, by the supply chain constraints as Dave commented on. We are well positioned with key players in the 5G space that will benefit Sanmina as it rolls out.

In addition, we have a strong position in the optical space, where we offer diverse portfolio of active, passive to full system. This will provide capabilities that we expect to benefit from the 5G rollout as we believe this will be needed for the increased bandwidth.

The industrial, medical, defense and automotive end markets we expect to be up compared to last quarter. We have a strong customer base here and we are well positioned in each of these markets. We continue to benefit from new program wins in the last 12 months to 24 months with solid pipeline of new opportunities.

This is becoming a solid part of Sanmina as it fits nicely within our manufacturing capabilities, our expertise and global footprint.

Cloud solutions is expected to be up sequentially and we continue to penetrate the global solutions market. As mentioned in our last earnings call, we will benefit from new program wins from a major cloud solutions company.

My view on the guidance, based on the forecast from our customers, new program wins and the ability to drive improvements and expected improvement in most of our operations, we expect our first quarter revenues to be in the range of $1.875 billion to $1.925 billion non-GAAP EPS range of $0.68 to $0.74 with expected positive cash flow from operations.

We are off to a great start, with solid momentum across most of our businesses. Please turn to slide 15. In summary, fourth quarter 2018, revenues up 3.5% sequentially, 6.9% year-over-year, operating margins expanded 50 basis points, non-GAAP EPS up -- over 21% to $0.67.

Fiscal 2018 revenues up 3.5% year-over-year. However, it was a challenging year with many new program ramps and supply chain constraints. Going forward, we have the momentum in our first quarter, demand remains strong, we are managing the supply chain environment. We made nice profit improvements in Q4 and expect this to continue.

Solid pipeline of new opportunities with strong book-to-bill, it's all hands down, focused on Sanmina getting back to consistent and predictable results. We have a strong, stable and experienced management team in place and we'll continue to add talent as needed. The foundation is in place, and I'm so excited for the opportunity.

Finally, I'd like to take this opportunity to thank our employees for their hard work; our customers, for their support and loyalty; and our shareholders for their continued confidence in Sanmina. I look forward to updating you on our progress over the coming quarters, and with that being said, operator, I would like now to open up the call for questions.

Thank you.

Questions and Answers:

Operator

(Operator Instructions). And your first question comes from Sean Hannan from Needham & Company.

Sean Hannan -- Needham & Company -- Analyst

Yes. Good evening, folks, and Michael, good to talk to you again welcome aboard. A few questions --

Michael Clarke -- Chief Executive Officer

Thank you.

Sean Hannan -- Needham & Company -- Analyst

Very welcome. A few questions to ask here, but I suppose the first I'll start with and I apologize, I had a little bit of a reception breakup. I wasn't sure if I had gotten all the commentary from Jure in terms of expectations looking into fiscal '19.

So just trying to understand, first, to what degree are we looking at fiscal '19 being a growth year here and how should we expect the shape of the year? Should it be somewhat similar to FY '18? I do think that typically you guys are always very back-end weighted. So just want to understand that.

So if there's a way we can get a little bit more color on how to think about this next year's estimates, obviously the first quarter, seems to be off to a good start, more color would be very helpful.

David Robert Anderson -- Executive Vice President and Chief Financial Officer

Yes, so Sean, it's Dave. As you know we don't provide guidance for the full year, but as we've -- as you can see from the guidance that we provided for Q1, we think that our fiscal year 2019 is off on a good start. So if you look at that guidance, we're guiding $1.875 billion to $1.925 billion in revenue.

So we obviously, we had a good quarter in Q4 and we expect to continue to drive toward as I mentioned in my prepared remarks. We're continuing to drive toward the first step of our longer-term plan toward getting back to the 4% plus operating margin level.

Sean Hannan -- Needham & Company -- Analyst

Okay, that's fair. Just to throw a comment here, as you guys are around $7 billion in revenues and a lot of your peers provides some more robust commentary around the outlook on the year, I think it might be helpful moving forward, but just to throw that out there.

So another question here is, as we look at tariffs and obviously there was a little bit of news around that today. Can you provide a little bit of feedback in terms of what you're hearing from your customers in terms of points of concern, points of risk, any viewpoints or color that you might have around that?

Michael Clarke -- Chief Executive Officer

Yeah, it's Michael. Many of our products come back, and not for US, for China consumption. They mostly come back here, and we have a sort of a robust system for passing these tariffs on to our customers. So we haven't really seen that as a big issue for us going forward, I don't know if you've got any comments, Dave?

David Robert Anderson -- Executive Vice President and Chief Financial Officer

Yeah, to Michael's point, we haven't seen any significant impact to us yet on the tariffs. We do pass them through to our customers. Most of our business that we have is imported. As far as our customers themselves and what they're looking to do, we have a very, very robust footprint around the world. We can provide a regional solution to them, and we also, because we are all on one IT system, we can move pretty quickly if they want to move somewhere else.

So we feel we can really support our customers when it comes to the -- any impact to them from a tariff perspective.

Michael Clarke -- Chief Executive Officer

But just as a follow-up, and we're not really seeing anywhere the demand for moving things around this time in place, but obviously like as Dave said, we have the ability with this fiber footprint, we have to be able to do that.

David Robert Anderson -- Executive Vice President and Chief Financial Officer

Right, yeah.

Sean Hannan -- Needham & Company -- Analyst

Very appreciated. Alright. Thank you so much. I really appreciate the help here out, I'm going to jump back in the queue.

David Robert Anderson -- Executive Vice President and Chief Financial Officer

Thank you, Sean.

Operator

And your next question comes from Ruplu Bhattacharya with Bank of America.

David Robert Anderson -- Executive Vice President and Chief Financial Officer

Hi, Ruplu.

Ruplu Bhattacharya -- Bank of America -- Analyst

Yes. Hi, how are you Dave? Thanks for taking my questions. You posted strong revenues for fiscal 4Q and you're also guiding strong for the first quarter, maybe another question on China, I think China represents about 20% of your revenues annually.

Did you see any slowdown in China and what are your expectations for China, I mean, for the first fiscal quarter?

David Robert Anderson -- Executive Vice President and Chief Financial Officer

Yeah, we don't break it down to comment specifically on each individual region or division, but as you know most of -- as we mentioned, most of our revenue out of China goes for export in terms of we -- I guess I'd say that that we don't expect -- or didn't see any huge change in that in the fourth quarter and going forward, I don't think that at this point anyway what we are looking into -- into the Q1, we don't see any major impact on that for Q1.

Michael Clarke -- Chief Executive Officer

And we -- and it's Michael again, and we constantly update our footprint accordingly of where we produced (ph) it.

Ruplu Bhattacharya -- Bank of America -- Analyst

Right. That makes sense. Maybe if you can concentrate maybe I'll ask you on the Communications segment. Could you provide us some details on the three sub components; wireless, optical and networking? Did each of them sequentially grow in the fourth quarter and are you expecting all three of them to grow sequentially in the first quarter? Any color on each of the segments?

David Robert Anderson -- Executive Vice President and Chief Financial Officer

Yeah, Ruplu, as you know, we don't break down the sub-segments any further than what we've provided on the call. We did see -- as I mentioned that our optical and networking was solid. The whole communication sector was up by 1.0 -- was sequentially up 2.6%, quarter-over-quarter.

We are, as we've mentioned before, in this position -- in this situation where we're -- we're in the same situation with wireless where it's transitioning from 4G to 5G. So we are expecting to obviously play in that transition, but I guess at this point, we would say that we're still waiting for that to happen.

Ruplu Bhattacharya -- Bank of America -- Analyst

Okay, fair enough. And then my last question is on the CPS segment. Gross margins, like you mentioned, declined 20 basis points sequentially. Can you clarify, Dave what happened with the product gross margins and do you expect product gross margins to grow sequentially in the first fiscal quarter?

David Robert Anderson -- Executive Vice President and Chief Financial Officer

Yeah, so the product margins contributed to the 20% down that we were on the Components, Products and Services and it was partially driven, as I mentioned with the delays in the shipments in our Tier one cloud solution provider.

We expect that to improve in our first quarter, going forward.

Ruplu Bhattacharya -- Bank of America -- Analyst

Okay. Thanks for taking my questions and congrats on the quarter.

David Robert Anderson -- Executive Vice President and Chief Financial Officer

Thank you.

Michael Clarke -- Chief Executive Officer

Great.

Operator

(Operator Instructions). Your next question comes from Jim Suva from Citi.

David Robert Anderson -- Executive Vice President and Chief Financial Officer

Hi, Jim.

Jim Suva -- Citi -- Analyst

Thanks. Hey, thanks so much. You talked about the delay and cloud spending from your customer, any sense on is -- is it a one quarter delay or a one-year delay and would you like the design to accept (ph) challenge or just to slow down in spending, just trying to get a sense on that.

David Robert Anderson -- Executive Vice President and Chief Financial Officer

Yeah. We didn't necessarily say it was a delay in spending, it was a delay in shipments. In the quarter, we are ramping as you know, we talked about that, that we had won that business and we talked about it on our Q3 call, and we're starting to ramp that business in our fourth quarter.

We've been dealing like we have on other parts of our business with some supply constraints and other things in that. So there were some delays. We expect that to start correcting it, and it has started correcting itself in our Q1.

Jim Suva -- Citi -- Analyst

Okay, that's it. And then a follow-up on -- within your Comp segment, the optical, any comments on optical? Was it better, was it worse in your outlook for optical?

David Robert Anderson -- Executive Vice President and Chief Financial Officer

No, I think on the optical piece of the business, it's one of -- it's in networking, our largest piece of the communication segment and we were pretty, pretty much, you know, weighing (ph) that segment because we do everything in optical, I mean, from passive and active components, all the way up through systems, we haven't been as impacted as others have in the optical segment.

So, we didn't see any significant, huge decline in the optical on a year-over-year basis.

Jim Suva -- Citi -- Analyst

Okay, great. My final question was the goodwill impairment. I assume that was on your balance sheet and the other asset line, maybe I'm wrong on that and if so how much goodwill is still left on our balance sheet and was it related to Newisis or Motorola Solutions or the Oil and Gas acquisitions in the past or how should we think about what's left and what was the cost?

David Robert Anderson -- Executive Vice President and Chief Financial Officer

Yeah, so the goodwill is, I believe in our other assets and we don't have a lot of other goodwill left on our balance sheet, but the -- what I can say about it is, it is in our Components, Products and Services segment, but we don't really break that down any further that that.

Jim Suva -- Citi -- Analyst

Thank you so much for the details and clarifications. That's greatly appreciated.

David Robert Anderson -- Executive Vice President and Chief Financial Officer

Thanks, Jim.

Michael Clarke -- Chief Executive Officer

I think we have time for just one more question, please?

Operator

Okay. And your last question comes from Christian Schwab with Craig-Hallum Group.

Christian Schwab -- Craig-Hallum -- Analyst

Hey congratulations guys on a solid quarter and guide in this environment. Just back to communications, your largest -- wonder if it was your largest -- one of your large competitors, Flextronics talked about seeing 5G positively impact the most recent quarter. As you look at your Wireless and optical business and the opportunities for the products that you're manufacturing, do you have a time frame of when you would expect that to have a positive impact on the top line?

Michael Clarke -- Chief Executive Officer

Yeah, I think by the end of the year, we probably will see that come in, as (ph) of fiscal year. I mean we do a massive amounts of prototypes and you never know with technology they can be delayed a quarter or two or something, but we sort of like putting it for that for the end of our fiscal year to really affect us.

Christian Schwab -- Craig-Hallum -- Analyst

Okay. Fabulous. And then my last question regarding gross margins in the Components, Products and Services area, maybe for Michael, what is, what type of mix of business or design wins do you believe, or do you believe you already have in hand to kind of get back to the upper-8, low-9, gross margin range, and is that a goal that you think is attainable within the next year or is that something that you may (Technical Difficulty) to accomplish?

Michael Clarke -- Chief Executive Officer

Yeah. Yeah, I mean I'm obviously, I'm relatively new at this, but yes, for sure that's the sort of margin and when we've been looking at the pipeline and some new business that we've booked with, we've done some, you know changing around with some facilities and moving products around. So we feel pretty confident and, I mean, that's our goal.

David Robert Anderson -- Executive Vice President and Chief Financial Officer

Yeah, I'll just add that. On the Components, Products and Services side, I mean, we're constantly trying to drive our vertical integration, as you know, Christian, and we expect to see in our Q1 guidance to see improvement in that -- in Components, Products and Services as some of, as Michael mentioned -- some of the actions that we previously announced, continue to take hold in the first quarter.

Michael Clarke -- Chief Executive Officer

Okay. With that, I want to thank you everybody for joining this call today, and I do look forward to updating you on our next call. So thanks to all.

David Robert Anderson -- Executive Vice President and Chief Financial Officer

Thank you, everyone.

Operator

Thank you. This does conclude today's conference call. You may now disconnect.

Duration: 47 minutes

Call participants:

Paige Bombino -- Vice President of Investor Relations

Jure Sola -- Executive Chairman

David Robert Anderson -- Executive Vice President and Chief Financial Officer

Michael Clarke -- Chief Executive Officer

Sean Hannan -- Needham & Company -- Analyst

Ruplu Bhattacharya -- Bank of America -- Analyst

Jim Suva -- Citi -- Analyst

Christian Schwab -- Craig-Hallum -- Analyst

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