Question-and-Answer Session
Operator
(Operator instructions) Our first question today comes from the line of Louis Miscioscia - Cowen.
Louis Miscioscia - Cowen
Mike, when you look at the $0.21 to $0.27 cents in guidance, when you compare it to a year ago, what’s the big difference in that we’re $0.03 below a year ago when you compare the high end of both?
Michael McNamara
There’s an element of conservativeness in our models as we mentioned just because of the uncertainty. We continue to be nervous about what the future brings us. We’d be silly to think there’s more negativity not coming. So there’s a number of things that drive the margin target.
Part of it just the flow through of the material coming across some very, very freight expense in the September quarter. So even the Euro been down for quite some time, coming down. We still need to reset those contracts and get those parts bought into our inventory and actually shipped before we can recognize the benefit of those things.
We’re up a little bit in R&D expenses for a number of reasons, but we continue to invest going into the future. We continue to have a very difficult increase in China where the cost of labor has gone up substantially and we’re actually in more transition than you think, even if you look at the September quarter with $8.8 billion in revenue. While the pipeline is strong and new business coming in, there’s a general sluggishness and slowness to the rest of the base business. What we’re doing is simultaneously bringing in new business to offset continually softening business in places running very nicely. Best example, mobile phones will grow the business this year, we’re ramping down reasonably significantly in the cell phone operation in Malaysia and ramping up very significantly cell phone operation in Mexico. So while it looks from your standpoint that the revenue is roughly the same, alternatively that transition creates quite a stress on us. We actually think that the combination of those factors end up putting some pressure on.
Louis Miscioscia - Cowen
How do you feel about obviously the way that the dollar is strengthening. Does that represent an additional risk that maybe you might have already hedged for if it gets manageable.
Paul Read
The strength of the dollar for us, outside of our hedging programs, certainly represents an opportunity and some margin increasing for us. In Europe, with the Euro at 1.28 yesterday, assure our local costs achieve in dollars. We suffered when the Euro was closer at 1.55 on the way up. So we hope to benefit on the way down. Just as an example.
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