Good line of discussion... lets work on the answers.
From what I understand, GET is supposed to contribute about 250-300 million in revenues this year, assuming no major new contracts for the GET facilities. At first glance the $250 million price tag seems high. But we don't have the details on how many shares will be issued to buy GET, and so the $250M figure may be based on a higher stock price. Also we don't know the strength of the balance sheet, so its very difficult to compare pricing. But lets proceed with the assumption that Jabil is paying up to get GET. Why?
The deal strengthens Jabil's Asian operations considerably. It adds a million square feet of floor space, mostly in China. This should almost double Jabil's worldwide floor space. It brings in several large new customers:
- Telephones and telephone accessories for Alcatel, Lucent, Philips and Nokia.
- Copiers for Xerox and Sharp
- Braun Thermoscan thermometers
(I notice that many of these customers (and sometimes even the products) are the same as Flextronics customers. I wonder if GET was a second source?)
The inclusion of these new customers decreases Jabil's dependence on their big customers (more on this in the next post).
These products are high volume low margin products, and so for shareholders who bought Jabil because of their higher mix higher margin businesses, this deal must be confusing. But perhaps this is a necessary step for Jabil... to establish a high volume low cost manufacturing site. Most of the big players (SLR, FLEX, DIIG, SCI, CLS) have large manufacturing spaces in China, and this deal gives JBL a major facility there. I wonder if JBL had to make the acquisition in order to provide a fuller range of services to customers?
My own opinion, is that Jabil must have plans for significantly expanding GET's capabilities, probably to bring in new products/customers, or move some existing work there. Furthermore, the acquisition brings in a new pool of experienced EMS personnel (unlike an OEM plant acquisition). The GET personnel also are experienced with the high volume low margin work done in Asia, so this increases Jabil's international manufacturing skillset. Since GET was headquartered in the Silicon Valley, this also adds some local skills here. My contacts tell me that the Jabil facility here is extremely busy, expanding as fast as they can, and they are scrambling to add qualified personnel (They had a big job fair this week).
I suspect the analysts can't quantify these factors... hence perhaps some confusion at this time. I will address your FY2000 revenue projection questions in my next post.
Paul
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