Paul Fox on ECMs. Rates all of the usual suspects a "Strong Buy" except Jabil, which is rated "Buy". Got a word on that one, P?
best, sam
Industry Leaders in Contract Manufacturing
Are Gaining Market Share And Experiencing
Revenue Growth, Banc of America Securities'
Analyst Tells Investors
SAN FRANCISCO, Sept. 29 /PRNewswire/ -- The following is being issued by Banc of America Securities, a member
of the National Association of Securities Dealers, CRD number 26091:
The top companies providing contract-manufacturing services to the electronics industry are experiencing accelerating
growth in market share, earnings, and revenues, says an analyst for Banc of America Securities.
(Photo: NewsCom: newscom.com )
Typically viewed in the past as providers of buffer capacity and used for assembling printed circuits and such, these
companies are now expanding their range of products and services. The contract manufacturers of today design and
develop products, manage information, assemble systems, and handle distribution and order fulfillment said Paul Fox, a
senior research analyst for Banc of America Securities.
Fox's comments came at the 29th Annual Banc of America Securities Investment Conference, which runs from
September 27 through October 1 at the Ritz-Carlton Hotel in San Francisco. This former Montgomery Securities
conference bears a new name but boasts a program that lives up to its impressive reputation. The five-day conference
features 250 presentations from companies that are driving the Business Services, Consumer & Retail, Energy,
Entertainment, Media & Telecom, Financial Services, Health Care, Industrial Growth, Real Estate & Lodging and
Technology industries.
According to Fox, the large contract-manufacturing firms are well-positioned to continue to increase their market share
in the production of electronics products for OEM manufacturers. OEMs increasingly outsource manufacturing to
contract manufacturers (CEMs) to help reduce costs and working capital requirements, increase manufacturing
flexibility, access branding advantages and speed product time-to-market. Moreover, contract manufacturers offer an
expertise in manufacturing that their OEM customers are eager to leverage, Fox said.
In 1998, electronics manufacturers spent $627 billion worldwide to produce their products, but only $80 billion of that
total, or 13 percent, on the out-sourced contract manufacturing. Fox reported that by 2002, contract manufacturers are
expected to garner 24 percent of the total amount spent on manufacturing, or $211 billion.
The top ten contract manufacturing companies are expected to grow their revenues even faster than the overall industry.
With revenues of more than $23 billion in 1998, these ten players are expected generate over $76 billion by 2002, said
Fox.
Fox pointed out that contract manufacturers generally expand less through acquisitions of competitors than by
integrating divestitures from other manufacturers. For example, these companies often make agreements to take over the
manufacturing operations of their major OEM customers, such as those from IBM and Hewlett-Packard, in return for
long-term volume purchase agreements from the OEMs. Such acquisitions are typically low risk and inexpensive, Fox
noted. Other key factors to contract manufacturer growth include establishing low cost manufacturing sites in Mexico,
Brazil, Asia and Central Europe, and maintaining diverse customer and revenue mixes.
The risks associated with contract manufacturing includes a high dependence upon telecommunication, data
communications and computer-related markets; expansion start up expenses; and the potential for customers' renewed
interest in vertical integration.
Fox recommended the stocks of the six largest players in the industry: Solectron* (NYSE: SLR - news; $71-7/16,
Strong Buy), Sanmina* (Nasdaq: SANM - news; $78-7/16, Strong Buy), Flextronics* (Nasdaq: FLEX - news; $60,
Strong Buy), SCI Systems* (NYSE: SCI - news; $45, Strong Buy), Celestica* (NYSE: CLS - news; $49-3/16, Strong
Buy) and Jabil Circuit* (NYSE: JBL - news; $49-1/8, Buy).
Banc of America Securities LLC (BAS), a subsidiary of Bank of America Corporation, is a full-service investment bank
and brokerage firm. With principal offices in San Francisco, New York City and Charlotte, BAS employs more than
4,000 associates in offices around the country, and with affiliates, offers capabilities worldwide.
Bank of America Corporation, with $614 billion in total assets, is the holding company for one of the largest banks in
the U.S., with operations in 21 states and the District of Columbia.
Banc of America Securities LLC currently maintains a market in SANM, FLEX. Banc of America Securities LLC
was manager of a public offering for FLEX in the last three years. Banc of America Securities LLC was co-manager of
a public offering for SLR, SANM, CLS in the last three years. Banc of America Securities LLC has performed
investment banking or other services for JBL in the last three years. Banc of America Securities LLC was financial
advisor to GET Manufacturing, Inc., in connection with its pending sale to JBL. CLS research may not be distributed
into Ontario, Canada.
SOURCE: Banc of America Securites LLC |
