Hi Sam and Paul S. and STeve: Here is my take on the industry which I posted on another thread. What do you think?
Studio, I agree with you. CLS presentation(CEO) also agrees. The Dell
model for EMS is the goal.Cash recycle =0. SLR said 4-6 quarters to
meaningful upturn but things stabalized. CLS said 5 quarters but
things substantially stabalized. So what are the new values. Old
values were PSR of 1 to 1.2, PE of 35, Growth 40-50%, Net margins of
3-4%, all higher for SANM and lower for SCI. Now they are in the
pack. New PSRs = .5, PE 25, Margines=2%.Now we have stated growth by
SLR, JBL, CLS , FLEX of 25%. Pegs were always about 1. So FLEX at 50
cent earnings selling for 12.5. CLS at 1.00 selling for 25. PSRs are
now .5. Why? PE x net margin = PSR so 25 times net margins of 2%= .5
psr.Marks of FLex saw it last quarter and said they were going to
concentrate on profits and they have, doing what you suggested as to
margins,DSO,I/T etc.Just in time inventory is the watchword with
suppliers doing VMI at Flexs industrial parks. So CLS and others says
flat for next two quarter and maybe as much as 5 quarters . But
growth 3 times present revs in 5 years.This equals 25% about growth
but the curve is not straight line but curved. SLR says EMS plus ODM
equals 230 bill with EMS about 130 bill of that. This is 28%
penetration of a 800 Bill market growing at 6-8%.SLR says market in
three years is 1.2 trill and 40% penetration equls 484 bill. How much
is ODM is question and the analysts keep asking about that. Still the
Japanese are supposed to be 20-25% of electronics market. Question-
are the gross numbers including the japanese or are the japanese part
of the 800 bill. If so penetration by EMS-ODM higher on the non-
Japanese portion and growth prospects less. Japanese are supposed to
be the fourth wave of growth after NA,europe,Asia. But progress is
slow although NEC did deals with SLR and CLS. Anyway with slower
future growth, lower PEs, lower PSRs , several quarters of
stabalization before growth again, and margins at 2% net for the best
guys , This explains to me the present EMS stock prices and fits them
perfectly except for JBL (a special case). When the EMS guys do what
you say as to efficiency then maybe higher valuations. This is tough
job though. Takes a lot of information technoloy throughout. With
material 85% of COGS, it has to be done there like Dell, there just
isn't room in the value add side of people/plants/-service to get
these efficiences. Maybe that is why 3 of the EMS went to the
vertical model. More profits when sales return, but in the meantime
CLS and JBL are performing better in this enviroment with no heavy
overhead from PCB, enclosure, etc. When things improve, I think a PSR
of about .75 to .8 is in order so I am figuring upside from that
metric. Cheers
Rick |
