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Strategies & Market Trends : Electronic Contract Manufacture (ECM) Sector
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To: Steve Hufnagle who wrote (2171)11/28/1999 1:09:00 PM
From: Creditman  Read Replies (1) of 2542
 
Steve ... Many manufacturers want out of the business of making their products. Example you will recognize may be HP. They used to make just about all their own products but have sold several of the factories to DIIG; like the factory in Germany. IBM Austin went to DIIG also who builds IBM computers there now. SLR picked up a couple of the Scandanavian phone factories on the same kind of deal. Virtually always, when the ECM buys the factory they negotiate a supply back contract ... to continue to make what was always made in that factory. Ergo the mfg does not have to layoff long term employees who are expert in making the product and the ECM gets a base of business to start with too.

The advantages include; doing away with unions, gaining the ECMs better efficiencies (because they can build other stuff during slow seasons), reducing fixed overhead, etc. IMHO one the principal reasons ECM stocks have been so hot is that they have been able to grow capital and capacity from "gifts" ... OEMs saying "take my factory, please!" Supply back deals make it possible ... otherwise the ECMs would just get empty buildings with some used assembly equipment.

Whenever the deals go down there is usually info on the supply back disclosed. It is not a secret.
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