Corrected Transcript. 10-May-2017 Flex Ltd. (FLEX) Investor & Analyst Day. Total Pages: 52 Copyright FactSet CallStreet, LLC

Transcription

1 Flex Ltd. (FLEX) Total Pages: 52

2 CORPORATE PARTICIPANTS Kevin Kessel Vice President-Investor Relations, Flex Ltd. Michael M. McNamara Chief Executive Officer & Director, Flex Ltd. Jeannine Perchard Sargent President-Innovations & New Ventures, Flex Ltd. Thomas K. Linton Chief Procurement & Supply Chain Officer, Flex Ltd. Mike Dennison President-Consumer Technologies Group, Flex Ltd. Paul J. Humphries President-High Reliability Solutions, Flex Ltd. Douglas Britt President-Industrial & Emerging Industries, Flex Ltd. Caroline Dowling President-Communications & Enterprise Compute, Flex Ltd. Christopher E. Collier Chief Financial Officer, Flex Ltd. OTHER PARTICIPANTS Steven Milunovich Analyst, UBS Securities LLC Amit Daryanani Analyst, RBC Capital Markets LLC Steven Fox Analyst, Cross Research LLC Mark Delaney Analyst, Goldman Sachs & Co. Sherri A. Scribner Analyst, Deutsche Bank Securities, Inc. 2

3 MANAGEMENT DISCUSSION SECTION Kevin Kessel Vice President-Investor Relations, Flex Ltd. Good afternoon and welcome to the 2017 Flex Investor and Analyst Day. We're so excited to be able to host you this year in our New York City Innovation Hub. We didn't want to host Investor Day in New York in a hotel like we've done in the past and like I'm sure you've all been to more than enough Investor Days in different hotels and ballrooms. We wanted to be able to host within an intimate environment, an environment that would be immersive where we could really bring some of these slides that you're going to see later on in today's presentations to life. I've personally been with Flex and I've had the privilege to run and lead the IR program for the last eight years and I've been around this industry for almost 20, and I've never been more excited about our strategy or our position than I am right now. And I speak to many of you in the room and I get the same sense. In fact, you may have noticed, it's a pretty full house. This is the first time we've ever, in my history with Flex, had to have a wait list to get into Investor Day. So, it tells me that interest in Flex is on the rise. We're really excited to also talk to you about a lot of the trends that we see that are defining the industry. Specifically, I think that we're all collectively getting the sense that there's a new revolution in front of us and that's the revolution where we're seeing all products across different industries becoming digitized, becoming smart and connected, and you're going to see plenty of that throughout the day. Speaking of the demos, behind me, let this be a quick guide to the layout and the topology of the room. You will see those demos on both the right and left side, as well as behind me. And in fact, when we think about New York at Flex, we think specifically about it being the center of our connected living strategy. Behind me, we have a connected living demo that I encourage all of you to check out during the breaks and we will have guided tours at the end as well, that is one of the best you will ever see. Also in the back of the room, many of you already noticed, and I could see by the flock of people back there, our fashion and apparel demo. We're going to have Mike Dennison obviously on stage later today talking about Nike. But he'll also be back there. And what New York does for Flex in terms of having actual presence here is it puts us much closer to that industry, the fashion and apparel industry, and it allows us to have better access to it. Couple of quick housekeeping notes. You'll notice there's color sticker on your badge. That will coincide with the group that you're with later today at 4:30 when we break. It's very important when we end at 4:30 that everybody collectively go in the directions of where the groups are and you take your belongings with you. And the reason I say that is we're going to be breaking down the entire middle of this room. And it will happen in about 15, 10 or 15 minutes. But we're going to need everybody to help us in that endeavor and transform the middle of the room into a more comfortable area where we can bring out the cocktails as well. At the same time, you'll notice ipads scattered throughout the building. And I know what you're thinking, 2017, it was a really good year, record adjusted EPS. And you're thinking Flex is going over the top and they're giving out ipads. Bubble time, right? No. No. These ipads will be collected at the end of the day, all right? But what they will help you with is in the event that you have an obstructed view, you'll be able to see everything on those ipads. You can also, by the way, use your own device to follow along. 3

4 And now, my favorite slide. This is the one that when we say tell my general counsel, I spend the most time practicing. This meeting and these presentations contain forward-looking statements, which are based on current expectations and assumptions that are subject to risks and uncertainties, and actual results could materially differ. Such information is subject to change and we undertake no obligation to update these forward-looking statements. For a discussion of the risks and uncertainties, see our most recent filings with the SEC, including our current annual and quarterly reports. If this presentation references non-gaap financial measures, these measures are located on the Investor Relations section of our website along with the required reconciliations. Briefly before I get into the agenda, I just wanted to state that we are reaffirming our Q1 guidance. What you see up on the screen is the same guidance that we presented you with two weeks ago. And now on to the main event. We've broken the day into three sessions. The first will be and all three sessions by the way are all revolving around this theme of igniting. The first session is called Igniting Intelligence, and in this session, what you will see is how we are using our platform to access new industries and unlock new TAM. And at the same time, we're improving our engagement model with both our customers and our suppliers to be much more strategic and less transactional. We'll then rotate into the middle of the day where you'll hear from all four of our business presidents. They'll take you behind the scenes to let you know what growth vectors specifically they're most excited about. And as you can imagine, it will tie to the demos that you see all around you. And we'll end the day with a session on Igniting Earnings Power, where we'll take you back to the long-term model that we laid out for you a year ago. We'll explain to you the progress that we're making and how we and what the different levers are that should enable us to earn that long-term earnings growth that we've spoken about in the past. We then obviously conclude with the demos and the cocktails. So, with that, let the revolution begin. [Video Presentation] (06:04-08:14) Michael M. McNamara Chief Executive Officer & Director, Flex Ltd. So, good afternoon, and [indiscernible] (08:18) that was a good afternoon. I've got to admit I'm just [indiscernible] (08:20) I guess you guys are just here to take notes. So, listen, we're thrilled to have you here, as Kevin mentioned. This is the first time we've actually been sold out. We got a little standing room only going on, mostly our people I can see. But we're really happy to have you here. We feel I've been here for 25 years and I've been in this industry for 25 years and I've never been more excited about the opportunities that are in front of us and the positioning that we've been able to build over the last few years. Because really what we really describe here is like, as the video described, is we're moving into the age of intelligence. And it's an area where products are just different. They're smart. They're connected. They can capture and analyze data. They can move to be more into predictive systems. We can move more into artificial intelligence and be cognitive. All these things are coming at us. And as a result of that, we've never had so many different opportunities and so many different ways to really add value in the world today and really dominate and lead in the world today in our 4

5 industry. So, we're really, really excited about the opportunities. We believe we're extremely well-prepared and we're happy you've been able to spend the time with us today and we're looking forward to having a good conversation. And over the last five years, we've more than doubled our stock. We're pretty thrilled about that. And as we look forward over the next five years, we will definitely expect to more than double our stock again. So, and what we're going to do today is show you our strategies and how we're going to be able to accomplish them. So, let's talk about to take it up a level. We're actually moving into a new era. We're actually not even moving into a new era. We're actually in a new era. And what's happened if you think about the development of the world, it used to be land was really important. People wanted freedom. They wanted religious freedom. They wanted safety. They wanted security. It was available and unclaimed and people had there was a rush to go acquire this land. Then, we went to another area around really developing the resources and the land was an enabler to get to more and more resources. It actually created an opportunity for more economic development and it created an opportunity for more people to take advantage of what society had to offer as the world began to develop and people used the land to go create oil and iron ore and gold and silver and harvest the land in a way that it actually benefited society and this lasted for many, many years. Think about what Henry Ford did at the beginning of 1900s. It moved to more about controlling production. And what he did is he took a lot of different disparate systems and organized the resources of production, the resources and the materials associated with production to produce a more efficient system. And we built management system and management process about how operations happen. And if you remember, his objectives was to actually create an opportunity for everybody to buy that car. So, what he did is applied some of the new technologies of his time to reinvent how production occurred, and once again for the benefit of society. And this occurred for many, many years all the way through the decade or through the millennium of the 1900s. We are in a structurally different era today. It's not about the land or the resources or the controlling of the production. It's really built around applying intelligence. Our world has moved into a place where data, the analysis of data, the intelligence that we can get off data, the harvesting of these data to be able to actually help manage our lives and create economic benefit has now changed. This is the world we're in. This is the age of intelligence. In 2006, Motorola had the fastest-selling phone called the Razr, and if you may remember it, the reason it was the best-selling phone is because it was the coolest phone, but for a lot of other reasons, I'm sure nobody remembers the software. It was simply the coolest phone. So, what happened in 2007 is Steve Jobs came along and he re-imagined the experience of what could happen with a different kind of device. So, he didn't build a cell phone. He built a phone, an Internet connection device, an ipod player, it connected into your computer as it integrated across your itunes library, maybe even more importantly included an ongoing relationship with the customer, which never happened before. In that ongoing relationship, you continue to go into it. You end up [ph] buy (13:33) itunes, to buy more apps. Each fundamentally changed how a person experiences life by re-imagining what that product looked like. And we 5

6 simply went from a product to a system. And I think this is actually driving a lot or most of the produc t development in the world today. If you are not competing with the system, it becomes very, very difficult, [ph] but what (13:57) Steve Jobs has reinvented how we think about how we add value to the consumers. Additionally, another good example is the car. In a world with the car for many, many, many years, we have one right here, goes a little bit faster, is a little bit better fuel efficiency. You don't have to tune it up for 25,000 miles; you have to tune it up at 50,000 miles. We just worked to build a little bit better product every year. But if you can think about what the car is today, it's different, it's about being connected, it's about entertaining, it's about transporting. When you go provide a car you want to know how it is that your device is going to integrate into that car. You want to know how many autonomous features it has, it's completely changed and maybe we even redefine the problem we're trying to solve. Maybe the problem we're trying to solve is really mobility, and not just building a better car. Tesla calls itself a technology company. Ford now calls itself a mobility company. Products have moved to systems, and in moving the systems they've been able to and on the back of technology been able to describe and talk about how do we create solutions to help people live. So the world has fundamentally changed. We have a tremendous visibility into the world. We have all these different industries where we have over $1 billion of revenue. We have an extraordinary diversification and we could see this diversification across industries and across geographies, and it provides us a tremendous view and a tremendous opportunity for our customers. As you go around some of these booths today, you'll see consumer products that we've applied into automotive and medical products that we've supplied into consumer. And now, we've been able to take automotive solutions and move them into industrial products. All these things have gains and it creates a huge opportunity to have this amount of diversific ation as visibility. And one of the nice examples I'd give you is one of the car companies, major car company's asked us to do a key fob so that if you walk up to the car, it automatically opens. We literally took all the technologies out of our consumer products division and we actually produced products in two weeks. I mean, imagine being the CEO of the car company and trying to figure out how am I going to do all this interconnected technology and be able to do that starting from scratch. What's more interesting is the amount of diversification and the visibility that we see from a customer standpoint. What's interesting about a customer's standpoint is we can now triangulate within industries. We see product technologies and evolutions within the industries that also give us visibility. But as we think about this system, where we can triangulate across geographies, across industries and within industries across customers, we get a tremendous visibility of the future. And this is the basis for how we think about investing, where we think about putting our resources, where we think about putting our capital into play. We have the visibility to move forward. And what we built is what we call the platform. This is our system at Flex, for all the tools, the c apabilities, the resources, the investment priorities that we have to build our systems to compete into the future. Our visibility in order to decide on what to invest in is actually pretty extraordinary. We rolled this out to you guys in 2013 at the Analyst Day. And when we rolled it out, we said we were going to continue to build this system and this was the system that we were going to use to build going forward. This is the cornerstone of our investments that we've made in order to compete into the new world. And we're really excited about what we've been able to produce. It's a very, very broad-based platform. When we innovate across three different levels, the most important level is at a management system level. Our objective is to stay relevant and agile in a very disruptive world. Our objective is to drive all of our systems and processes to digitize them, to drive them into being mobile solutions to have 6

7 collaborative systems around them. To be able to analyze the data that comes off them, to actually drive to real insights. It's not about data, it's about the insights that data gives you. And we distributed down to our management team through mobility. Our objective is to have real-time information across all of our systems. This is what we've developed and this is the picture that you see on the wall. For those of you who went up to San Jose last year, you would have seen this in action. Much different now, much more robust. I talked about the age of intelligence; this is the age of intelligence in action. We already have the age of intelligence in terms of how we run our system. We have a second layer of how we innovate across the platform. And our objective is to drive faster cycles and be able to enable our customers to achieve faster and faster cycle times when they develop their products. So, we innovate at the product and process level. We have processes that actually source and cultivated fine innovation. So, we know what the new innovations are. We build building blocks that actually have cross-industry functionality. And we have systems in our company where we find ways to distribute that information across industries, that we can add a tremendous amount of value. And then we commercialize it the same as we've always done. And the third innovation layer is really at the operations level. And what do we do at the operation level? We have 200,000 people around the world. We operate in 30 countries. We will use Industry 4.0 technologies to be able to drive and be sure our industries, our operations are the most efficient and effective operations we can have. What's also interesting and pretty cool about this is many of these technologies; we're actually innovating on the product level before it's even in the marketplace. So, like the robotics, the 3D printers, AR/VR. I mean all these things are actually in our labs that we're working with customers out on a product [ph] basis (20:56). And a lot of times that we just kind of like are early adopters and we know what's coming and then we can use it in our operations. It's actually a really cool spot to think about how we devise developer operations. But this system is exceptionally well built for the future. For the last five years, we've been building it. We've been investing it. We've been tweaking it. We've been honing it. We've been operationalizing it. And it's really good, it's really developed, it's really mature. And this is the core of what we built with the visibility that we have. And it's comprehensive. It goes all the way from how do we sustain an agile company all the way through to how we run operations. So, our industry has changed. We are actually in the third evolution of our industry. I mentioned at the very early stage that I've been in this industry for 25 years, and I think I've seen just about everything over that 25-year period. The one thing I'd tell you is each time there's a recession, there's almost a redefinition of what is happening in our industry because it fundamentally changes how the economy is structured and how it works and who the winners and losers are. And what we've done is we've gone from a period, where I think about the first evolution being contract manufacturing to electronic manufacturing services, but most importantly, the evolution we're in now is Sket ch-to- Scale. And in Sketch-to-Scale, the skills, the capabilities, the investment profile of what we need to create a competitive advantage is simply different. Back in contract manufacturing, it was actually quite simple. It's like, if you can do this for a lower cost, I'll give you the work. And if I'll close down my factory, if you can actually build it for 10% less than what I can build it for. The conversations we were having was very different and we existed, our role in the marketplace was just lower cost. So, you can imagine about trying to run a high-margin business that has continually higher margins where every conversation with the customers is about how do you get lower cost. 7

8 Then we moved into electronic manufacturing services after the 2001 recession. And it was a little bit different. We became much more worldwide. This is when China really took off. So, the operations became more sophisticated. We had a more sophisticated ERP system, more sophisticated quality system. We were able to do simultaneous product launches into different regions at the same time, and we added more services. We did more and more design services. We did more and more logistics service and distribution services. And we kind of renamed ourselves when we renamed ourselves electronic manufacturing services instead of contract manufacturers. But the conversation was still very much a cost-based conversation. Let me use the PC marketplace as a real good example about how this evolved. So, you guys can build this cheaper than I can because you have low-cost labor, great, you build it. But you also have some capability to build up design, why don't you go and do some design for manufacturability. That was pretty good. You did good on that. Why don't you do a whole design of a whole PC? That worked out well. A lot of labor arbitrage, more and more competence developed. Why don't you do the services for me? Why don't you do the repair, why don't you do the logistics? But every single conversation was based on you can do my design services, but only if it's lower cost than what I can do with my design services for. As we move and discuss the scale, it's structurally different. In the intelligence age, companies move from products to systems and products to solutions. The conversation is different. We're actually a solution to the coinnovation partner in a Sketch-to-Scale environment. Companies need to compete with systems. And when they think about launching their products, they don't think about launching that Razr which was just a product. They think about how do I compete in a new and disruptive world? How do I compete on data? How do I compete on the intelligence that that data delivers? How do I use that intelligence to solve the customer's problem in a different way? Because if I don't do that, someone else will. So, the system now requires hardware and software and data and information and analytics and artificial intelligence and move to be predictive and cognitive. And very often our customer is spending more of his effort and money around where that disruption and where that value creation is occurring and how to apply that intelligence and very often we spend more time working with the customer on the hardware because very often the hardware is the vehicle to get to where their business model has now evolve too which is in the information, which is in the intelligence. So, we have a different role in this new world. So, our conversation with our customer really changes? I've spent a lot of years in this industry never talking to the CEO. So, in contract manufacturing, even in electronic manufacturing services where you just have more things that you can be more cost competitive on, it was a conversation about how you drive the cost down. I would look across the director of operations, I'd know his bonus was completely based on what cost downs he was going to get. This is not an easy industry to work in but it was very difficult to have competitive advantage but this was the role that we played, this was the industry we're in. These were the conversations that we had back then and the conversations where I spend my time following on these companies. As we move forward in the Sketch-to-Scale world, the conversation moves to difference. They have to compete in the age of intelligence; they have to create a system. They have to work towards a solution. They have to make 8

9 sure they are not disrupted. The marketplace runs faster. So, we're more of a partner. We actually engaged earlier with those customers than we've ever had in the past. We have more conversations with these customers about how do you drive revenue and how do you drive margin expansion for them. We [ph] had (27:53) more conversations there in Sketch-to-Scale than the conversation of how do you just save me $0.25 on this product? Our conversations have structurally moved. One of the things we talked about last time where many of you were in San Jose, we have 4,000 to 5,000 people coming through our design centers, our center in San Jose, every single year. And the amount of conversations and people are looking to understand how do they compete in this new world, how do they pick partners in a world that moves much faster and is much more disruptive. I've had more conversations and many different conversations over the last year where I've had entire executive management teams including the CEO of Fortune, even 100 companies and board of direc tors that have come to learn about how we think about the future in the age of intelligence in the system. And I've had more of those conversations in the last year than I've had in the previous 24 years combined. It is structurally different. And we're excited about it because that as it moves the conversation, moves from the director of operations where his bonus is based on cost downs, to the conversations with the CEO and the CTO, and the product executive, where the conversation is how do I drive revenue and margin expansion of my business in this new, more complex world. This change in the conversation is creating a huge opportunity for us because this group of people, this group of executive is willing to pay for value. And it creates an exciting time for us to contribute in a different way. Our role has changed. If you look at the results of our movement towards Sketch-to-Scale, it's built around we had roughly 7% in We moved it up to 23% this last year that we just finished. The line of sight for the projects that we actually see in front of us is 40%. And if you look across the chart, this is every segment. It's in every product. This is not just a single segment or a single product opportunity, this is across the board. This is the age of intelligence. This is how companies need to act and operate in today's world. And we're seeing a tremendous opportunity. And as we continue to grow at this business, it creates a huge amount of confidence coming into the Flex system. This is enabling us to compete in a fundamentally and structurally different way and we're [ph] continuing to be (30:53) excited about it. So let me switch a little bit and talk about what are the benefits? When we think about investing in the platform, we think about all the technologies we've been honing over the last years. And we think about the movement into Sketch-to-Scale where we actually can enable our customers for more revenue and more operating profit in their business models as a part of being a solutions and co-innovation partner. Let me give you a couple examples. The first one I want to talk about is the shoe industry. There's a lot of conversation about the idea of reinventing the shoe industry. What's interesting about this is it's a whole new set of TAM that we will not have happen have had before. So what's interesting about the conversation, the conversation is not about how do we get $0.50 out of the cost of the shoe because we're going to do automation. The conversation is, one, how do I get an 18-month product lifecycle from design to store shelf down to 9 months? And in order to get the conversation from 18 months down to 9 months, you have to have regional manufacturing. You need a big system. 9

10 In order to get from regional manufacturing cost effectively, you have to have automation. And if you're going to have automation cost effectively, you have to have design for automation because to automate processes that were developed for labor makes no sense. So, as a result, we work with our customer now all the way into the design labs and we have to work 18 to 24 months earlier in the cycle in order to be able to really create value. And the value creation we're looking is if you can go from 18 months to 9 months, you're going to have more revenue, less scrap, less waste, less price discounting, less inventory write-downs. You can actually have real value in terms of how the business actually runs. This is a very different conversation than how do you get $0.50 out of the cost of a shoe. And what's really interesting for us is we're using the technologies and the capabilities that we've built in the Flex system and it's going to create massive amounts of new TAM as it's measured in billions of dollars that will be available to us that we've never seen before. And as we create real value, we would expect our margins to double. Let me give you another example, construction industry. The construction industry we talked about announcing a new JV called YTWO Formative. This is 13% of the GDP and there's almost no productivity growth in this industry relative to other industries. The idea of taking it from Sketch-to-Scale to actually take integrating all the way from the design through supply chain execution to product completion process is a huge opportunity. The ability for us our objective is to digitize this entire system. This would take all the modern tools that we built for all the other industries for all these other years, take the best of all those and be able to apply them. And by doing so, we would expect a massive amount of TAM to unfold to us measured again in the billions of dollars. What's most interesting about these two examples, as diverse as they are in places that we've never invested in before, these tools that we use [indiscernible] (34:45) be commonly applied. The ability to have sophisticated systems that manage your materials to have worldwide operation systems, to be able to use automation, to create and invent new solutions that people didn't think about before, these are all solutions where we're able to bring. And what's interesting is it's not just the shoe industry, it's not just the construction industry; this is a repeatable process across many different industries. And our objective is to continuously identifying new industries where we can reinvent and digitize and modernize the supply chain to create uncommon value within those industries and be the beneficiary of billions of dollars of revenue where we expect to make twice the margin. So, remember, I showed this slide earlier. I just left the data points off. We operate at scale in all these different areas. This is the foundation that enables us to continue to move into these new possibilities. Our foundation is incredibly strong. In fact, out of these 12 different industries, 9 of them we believe we're the revenue leader in our industry. So, 9 out of 12. It's an incredible position to come by. But these industries themselves are going to have limited growth. And where it really matters is the future industries. It's about smart cities and autonomous cars and connected living and digital health. These are all the new industries that actually really matter. And as we think about how do we penetrate these industries, it's across industry. You a need a cross-industry set of technologies in order to be able to develop both. 10

11 I talked a little bit about the key fob before, about taking the consumer products and applying them across into automotive, into a solution that we're able to get there quicker to give you a more detailed conversation. You know what I mean? A simple conversation would be, oh, there's a wireless module and you'll see there's espresso machine back here and a washing machine, and all these have wireless modules and everything's going to connect and be smart. Well, let's take a more complicated example. Let's take an autonomous vehicle. What does the autonomous vehicle need in the future? It need servers, storage, optical system, it has complex mechanical technologies, it has to interface into the telecom system and you have to build it all using flawless launches and automotivegrade manufacturing operations. We have every one of those technologies at scale. So, when it comes to creating a solution and integrating those, we are unbelievably well positioned and invested due to the diversification of our platform and the investments that we've made over the years. And our vision to recognize where the new industry the future industries are going to lie so that we can move to a better growth rates. There is unquestionably a tremendous opportunity in this. And if you remember what we have talked about over the last five years, I want to bring you back a few years. What we said is we're going to have continuous portfolio shift so that we can build a better portfolio that has more predictability, more longer product lifecycles and higher margins. And we've done that. We have over 50% of our business now in the target areas that were unbalanced, which is what we call IEI and HRS. We're going to talk more about those today. And as we shift to that, we've just come off 14 straight quarters of operating margin expansion. This has worked well. We've never much talked in this meeting about driving revenue because we didn't want revenue yet. We actually wanted to have a balanced portfolio that can deliver our investors very predictable earnings. So, this isn't going to change going forward. I want to show you some charts in terms of our commitment to continue to drive the portfolio and the investments and the bookings that we have to continue to do that, but we've now built the foundation. We've also built the foundation of the technologies in the platform. Now, it is our objective to move more towards a revenue expansion model. And the way we're going to do that is in the back of these new industries that we're heavily focused at in investing to be able to have this take advantage of the very significant growth rates that are occurring in every one of these different industries. And we expect to be a market leader, not 12, but maybe 7 out of 10 as we go and move forward. This is the objective we're trying to do. And if we can take this growth opportunity and lay it alongside the opportunity to continuously develop new industries by using the same technologies that we have throughout the Flex system, we believe we can continue to drive the massive expansion. So, we are shifting our model now that we've built the layer of stability that we need in our system, we are now shifting to be able to take advantage of the growth rates that are going to be available to us, because years ago, we built the right system. Ten years ago, what Apple did is that they reimagined how the customer would use a phone. They were ahead of their time. They were five years ahead of their time, maybe more. Tesla did the same thing years ago and they turned it from a hardware solution in mobility to a software solution. Once again, way ahead of its time. Amazon's done the same thing with AWS. The ability to provide that service to companies where they can actually take out 11

12 huge [ph] swats (41:10) of their capital investment and their engineers was extraordinary. It was a back -up offering services that no one else had. All these companies visualized the future. They all anticipated what needed to happen. What we've done is we've built this platform and as we move into the Age of Intelligence and we've thought about what are the technologies we need, we are now in an unbelievable position to be able to leverage those technologies, to be able to l everage those investments, our scale, all of the opportunities that we have in hand. We're able to take those things and it positions us to be a pivotal point of the future economy. And a pivotal point, as the world moves into the Age of Intelligence and as everything becomes smart and connected, we're in a position where we now are the right solution. And we believe that we've actually moved as how we think about what requirements are for going forward, we've actually moved ourselves into a marketplace of one. And I in my 25 years have never seen a position where we've had pure competitive advantage as we move into the next generation of opportunity. Needless to say, we're super excited about it. And hopefully you will be too because five years ago, over the last five years, we've been able to more than double the stock and it is our objective as we think about executing on the strategies and the systems that we built, and customers look for a platform partner, that we'll be able to more than double the stock again for the next five years. And we're going to show you that the rest of the day. So with that, once again, I want to thank everybody for being here. We appreciate everybody's time and attention and I would like to now welcome Jeannine Sargent, who's President of Innovation and New Ventures. Thank you. Jeannine Perchard Sargent President-Innovations & New Ventures, Flex Ltd. Good afternoon. Starting the conversation today, I'd like to share with you our approach to collaboration and coinnovation at Flex. Let's take a look. [Video Presentation] (43:31-45:09) I stepped on the stage a few years ago when we started the conservation about build-to-print to Sketch-to-Scale. And as Mike described, there's been a lot going on at Flex over the last few years, and in particular, the launching of Sketch-to-Scale which allows us to change the relationship and the conversation, but also the value that we create for customers and the value in terms of their abilities to provide unique and differentiated s olutions to these marketplaces in ways that they hadn't done before. So, we've been focused on this and what it results in is a richer engagement with the customers and a richer revenue stream for us to think about. Mike mentioned the layer of innovation and technology that we have developed to be able to support Sketch-to-Scale, and I'd like to remind you of the system that we've developed, we call the innovation system. We spoke a lot last year about the fact that we're cultivating and sourcing technology from universities and consortia and other types, from start-ups to large corporations, as we think about the capabilities that are necessary in order to be able to address these new markets. We continue to develop these programs. Our Lab IX portfolio is over 25 companies strong. A number of them have grown and matured and graduated into greater businesses that are supporting our customers. These are investments now that are pivoting into those new markets and industries that Mike mentioned like smart city or a smart home or autonomous driving. 12

13 So, these are areas where we look for underlying technologies, and we help these companies and we augment the internal development work that we have going on in our centers of excellence. So, layers in the connectivity from sensors and actuators to human machine interface, to the ability to have the kind of connectivity and the support that's necessary to address these new markets is requires a new type of technology, and to be able to develop that and then commercialize that at scale is what we've innovated and been able to do. A big part of the development in our system this past year has been focused on the Sketch aspect; the ability for us to expand the full product development capabilities and to do it again in new market scenarios where we hadn't done before. The new intersections of these markets such as digital health, connected car, connected home, these are all things that you'll have an opportunity to see an example of where we are providing unique and differentiated building blocks in technology that has now been commercialized and brought to scale with a number of our customers to help them achieve their end goals. And these all links together with the ability for us to leverage our manufacturing systems and our global footprint to be able to ensure that you could have the products that you need wherever you need them at the quality and the price performance points. So, together, this makes up our innovation system. In order to address the needs and address these markets, we continue to make investments and our footprint is growing. Since the last time we spoke, we'd grown the team of design engineers from over 2,500 to over 3,000. These teams are located in innovation centers and product introduction centers and design locations throughout the world co-located now, not only where we have manufacturing scale but as importantly, where the product in business technologies are being developed for our customers. So, we are adjusting the footprint in order to be able to meet the needs of where our customers need us today. We've moved from the build-to-print to Sketch-to-Scale and we've augmented the capabilities, and you can see now moving from design services through joint development, we are now more often than not co-innovating and collaborating with our customers in doing full system and product development and addressing particularly markets which we've not done before. So, what's unique and different now is we are now doing full product development in each of these markets, in each of the four business segments that you'll hear about later today. So, it's a comprehensive and broad set of capabilities that, again, is leading up to a tighter and richer engagement with our customers, longer cycle times, where was the customer a year or two before they've decided to go into that business [indiscernible] (49:34) at a point at which the industry is launching at inflection points, and we take them all the way through manufacturing scale. We are also working to provide unique capabilities and technologies that are needed by them in ways that they not have been able to do in the past. So, together, this co-innovation and collaboration allows us to create also a richer revenue stream in terms of margin opportunity. The focus and the requirements for us to be at the forefront of what is next happening in the inflection point is important. And as we move across the smart and connected aspects and the solution platforms that Mike was mentioning, we see as we've seen in the past that there are many inflection points in terms of market and technologies. As we look at what happened for example in the 1990s in terms of the smarter artificial intelligence, we've moved from expert system in neural network to recommendation technology such that you're used to dealing with on Amazon or a Google search engine, or natural language processing so that when you're calling your cable or phone company or you're on an airline reservation system. 13

14 So, we're yet again at another inflection point for technology, and voice interaction and machine learning and an artificial intelligent environment are going to change the way we engage. So, Amazon Echo is changing our engagement structure and creating an entirely newly new ecosystem from consumer to automotive. Machine learning is going to surpass human capabilities which is going to be necessary for us to be able to execute autonomous vehicles or even augment human capabilities in terms of a factory floor print and what we're doing in manufacturing, and I'll share an example with you. When we look at the connected space, we've moved from what was cable broadband or dial-up capabilities through high-speed Internet. And now, we're on the verge of 4.5G and 5G. The importance of us to be able to have a platform and a highway system to communicate that can handle the explosion of data that's necessary for on-demand video or real-time data analytics is what is driving us to 5G. We're also in a world of over 50 billion IoT devices are going at some point be connect in the near future. Many of those are low-cost and will have limited access to power. So, technologies in terms of low-power wide area network are essential across all of these applications. Mike mentioned the solutions in the platform. So, we're moving now from a smartphone with apps that essentially displaced our laptops and desktops to a world of augmented and virtual reality platforms with smart end points. So, the inflection points that we have in front of us for the Age of Intelligence in the next chapter that we'll go through requires significant investment and technology capabilities in each of these areas of smart and connected and be able to deliver that in terms of a solution platform. I'd like to share with you a couple specific examples that highlights the work that Flex is doing that you will now see in a number of the demonstrations that you'll see later today. In artificial intelligence, this machine learning and voice interaction will allow us to have significant performance but also cost savings across the network. As we look at low-cost cellular, as 5G approaches, as we've discussed, it's essential for on-demand video, for cloud applications, for autonomous driving. We need the capacity that we're going to get with 4.5G and 5G to be able to do that and we're focused on those core technologies and the new platform. When we all transform and we're no longer carrying the smartphones to be the central device and we're utilizing these new platforms, not only for consumer but one of the observations we see is that in the next few years, over 65% of enterprises will have used some form of augmented reality in their operations. This is going to create over $3 trillion of economic value just in an IoT factory environment, and these are the core technology inflection points that we're focused on. And I'd like to share a few examples with you of how Flex is actually utilizing these innovations in our own work. One of the first examples is in AR/VR manufacturing, and particularly with virtual reality. So, when you're looking at a third party manufactured product, most of them are configured to order or built to order. So, that means that there's variations in feature functionality, there's a complex mix of things that you need to actually configure in order to be able to deliver the product. At Flex alone, we have over 250,000 different product SKUs that can be configured to order. So, the process is simply quoting these projects in terms of accuracy and timeliness is a challenge. So, we've developed and are implementing a virtual reality platform that allows us to virtually build these complex configurations and you'll see an example with the data center rack. And this allows us to be able to more accurately and more quickly confirm the actual capabilities that are needed to build the product, to quote the product more accurately, which is more responsive to our customer and more likely to have a better accuracy relative to cost. 14

15 In utilizing this process and moving from a manual mode of trial and error to an automated virtual mode, we've been able to reduce the time to quote and improve the accuracy and go from five weeks to under five days. We're also able to adjust and have changes on the fly that we can virtually confirm for the customer. We are changing the way that we're engaging, and there's a direct applicability to this, to not only the data center configuration but also in a number of our other businesses. Second example is in artificial intelligence and particularly around manufacturing. So, one of the efforts that we have in terms of product assembly is we're going to continue to see a significant amount of human involvement in human operation. And the challenges around quality and productivity and also some of the ergonomic considerations are significant when we start to think about scaling up and continuing to have more complex projects. So, we actually are implementing an in-trial process in Silicon Valley a type of artificial intelligence around machine learning that is using, for the first time in the market, digital video analytics to actually video what is happening in terms of an assembler in a product assembly situation. And being able to do that over several operators, we then have algorithms that are able to take that in and learn the process and make recommendations and improvements in terms of productivity, quality and, as importantly, ergonomics for the human operator. So this is us being able to actually take advantage of some these inflection points in the new technology and improve upon what we're able to do in a manufacturing environment and for our employees. 5G infrastructure; as you know, Flex has been a leader in the transformation of the infrastructure for some periods in time and the need for 5G is being driven by the IoT device demand and the response that we're going to need to support applications such as the cloud and autonomous vehicles. Flex has deep expertise and capabilities, primarily that we've been investing in our Sketch-to-Scale program and programs like our cellular radios, our fronthaul-backhaul, the aggregation that projects that are happening with centralized radio area networks. This gives us a unique and deep capability and expertise to be able to support the transformation to 4.5G and 5G. The telcos now are in the process of several pilot deployments, spending billions of dollars over the next several years, pilot the R&D efforts for 5G. Flex is a key partner and enabler for them to be able to do this. We're taking advantage of that expertise including the expertise we have in radio frequency, testing, and certification in order to be able help them improve the capabilities and the speed with which we can transfer to 5G to address these market needs. The benefits are obvious in terms of the data speed, the reduction in latency, and the ability for us to be able to have more devices supported for IoT. So, these are three areas: artificial intelligence, 5G, and AR/VR that are just a few of the key technology areas that we're focused on. The success of the work that we're having is leading to significant improvements in terms of the Sketch-to-Scale revenue, as Mike mentioned, but as important, the design-enabled business that we see. Our design wins are continuing to grow, and this past year, we had 450 design wins in our group. The majority of our business now has transformed from build-to-print to Sketch-to-Scale. So over 75% of the engagements we have are these richer, deeper, long-lived engagements with customers where we are co-innovating with them on full-system product developments. We're doing this across all of our business segments. 15