SNX
#I'll start, then maybe <UNK>, you can add some detail later.
The good news is that I think there's been a lot more press and interest in Open Compute.
But also keep in mind that when we talk about or our overall Hyve business, only a portion of that is really directly related to Open Compute.
A good chunk of the work that we do, although somewhat touches on OCP, really are more custom configurations specific to our clients.
Collectively, when we look at the trend of large scale data center build-out, and in particular moving to more custom build, whether it be OCP based or not, that's really where the big growth in the market is, and that's what we address directly with our Hyve Solutions business.
Yes, <UNK>, your view on Japan is accurate.
It is much more of a broad line based business, and we do have a larger than North American footprint in the retail space than we have here.
That said, when we try to describe what's happening in the underlying market, and what's been going on for the past two years, the Japan economy, as you know, has been under stress.
It is recovering at this point, and we're actually seeing positive signs now two quarters in a row that there is stability, and certainly growth is starting to return in certain segments.
That is absolutely true in the commercial segment.
Consumer is still somewhat lagging behind, and because of the bigger footprint that we have in consumer, that is weighing down a little bit on our overall growth for that business.
So that said, we put double and triple effort into driving more and more presence and breadth in the commercial side of our business, starting with the product side, but also expanding market presence in other areas of Japan, that we feel that were under-served in the commercial part of the business.
And that's been an investment that we've been making over the past year.
That continues to happen, and we're starting to see good results come out of that.
So <UNK>, the sunsetted government contract frankly we've been calling out for two-and-a-half, three years, because we bought it from IBM, and identified it from the first call, and tracking to ---+ in fact, at the time we actually had two contracts within the government space that were ending, that we had to replace.
And one was, gosh, almost $100 million, and we replaced it without ever calling it out.
The second one, as we talked about, was larger than this originally, but in the last 12 months was a little over $120 million.
So we have been replacing those, and our view 90 days ago was similar to what it is, and has been right now, in terms of that contract.
In terms of some of the other movement from a site consolidation exercise in the US, this is something that we've been having conversations with for the last number of months, and had discussions.
Had there been price increases, well might have stayed within North America.
But frankly we're comfortable with what the outcome is, because it will allow us to be more profitable once we make the switches and moves of this different revenue business.
And actually, to follow up on one point, two of the centers actually had their leases up within this period of time, as well, so timing frankly worked out well with that as well, as we did our view of the consolidation.
So nothing's really changed within the last 90 days.
<UNK>, as I mentioned, in Q1 ---+ sorry, in Q2, the $28 million, the vast, vast majority of that is the contract that sunsetted.
In Q3, that sunsetted contract year-over-year compare was at the highest amount, and will be about a $35 million impact, just for that contract.
The offshoring will be significantly less than that.
We don't want to call out the final number, because we're just doing the transition plans and everything else that goes along with it, but it's ---+ I'll tell you, it's not as much as Q2 and Q3 of the sunsetted contract, in terms of annual revenues.
So put it in a size for you in that way.
I think your assumption is correct.
I mean, Q2 is what we see as our lower operating margin for the year.
And then we see progression as it goes through the rest of the year, primarily driven by obviously moving some of the work to lower cost centers, reshaping our US footprint, as well as some of the onboarding of new business that we have within our bookings that we're on-boarding.
<UNK>, I don't want to get into providing future guidance.
I think what I'll tell you is this.
Clearly, we have one contract that has lost money for Q1, that we're calling out as losing money for Q2.
But we've said that we'll be profitable for a full year basis is our belief.
And so that obviously will show up in one of the quarters, in the preceding two quarters that will be quite a big impact, and therefore will drive operating margin much higher than what you'll see seasonally for the first two quarters.
I think also you'll see the general improvement within our cost structure, as we take out some of the costs of the US and consolidate, and move some of the work to lower-cost jurisdictions.
While our revenue is muted a little bit by moving it offshore, obviously we generally tend to have a better margin profile of business offshore than onshore.
So all of that will contribute to a better operating margin as we go forward in the course of the year.
Sure.
For US specifically, I think going back to Q1, again, the slowness was pretty much in what I would call the broadline or commodity part of the business.
So obviously higher volume, but that is more the lower margin part of the business.
In addition to that, the consumer market was a little bit soft.
In particular, coming off of the post holiday season.
And there was not as many new product introductions as we had seen in prior years, as well.
So just kind of calling out where the softness was, it was broadline January specific, and the consumer market.
But as I said, as we continued on into our quarter, we saw the market really restore to more normal demand levels.
In broadline in particular, yes.
Yes, we would have reached these without the consolidation.
Just categorically, what continues to be strong is anything communications security related.
So within the specific product lines that we have, within networking, in particular campus Wi-Fi and pretty much all of our security lines, that was pretty strong.
But some of the hardware parts of enterprise were a little bit softer, in particular, some server categories.
Actually, it's more ---+ I'd bridge it more between Q3 and Q4.
If you remember, we talked about renegotiating it in Q4, and so there was a bit of catch-up that was Q3, pulled into Q4, with the renegotiation.
But I would bridge it more between Q3, Q4.
From an absolute operating margin dollar perspective it will be down, just because of the gross revenue will be muted, and down from it.
But from a margin profile perspective, at a gross and at an operating income margin perspective, it will be higher.
No.
I mean, we do do this on a continuous basis.
We're always working with our clients to move things around.
Specifically what was driving these discussions was I mentioned two of the facilities had their leases up.
And so before we re-renewed ---+ and they were single use facilities I guess is the best way of putting it ---+ before we renewed, we wanted to make sure the client was as committed as we were.
When we started going through the new pricing model with the increases and other things, the reality was that it didn't make sense for the clients, and it was a better decision for them to move their work elsewhere, and us to support that, and work with them.
And these had been long-term contracts that had come across from IBM, that had not seen increases for some time.
So the reality is that effectively, cleanup, because these two came at the same time we're calling it out, but we've actually had moved things back and forth, as well as moved some things onshore, for whatever the client's strategic initiatives are, that we need to support.
