Problem is with parts shortages.
Solectron's revenues seemed to come in a bit light, but they hit the EPS target. I am not sure revenues were light by much, since if SMOD was included for the entire quarter, the revenues would have been $2.8 M. Also the operating income would have been $155M, and working down to the bottom line, we would have seen 39-40 cents eps on a pro forma basis.
But the revenues still disappointed many, I think. Solectron says they lost over $100 million in revenues because of a parts shortage (flash memory and tantalum capacitors etc). In fact, much of the cc focused on the $400 million increase in inventory since the end of the last Q, a run-up in inventory of 40%. About 50-75M is semi-finished product waiting for parts to finish. Another 100-150M is increased ordering of parts to get bulk buy discounts and lock in supply, and another 150-175M is Y2K buffer (worried about problems at suppliers?). They expect some improvement in the next Q, but continuing shortage of parts will keep inventory turns below 8. Only in the 3rd and 4th Qs do they expect to see inventories return to more normal levels.
The good news is that they reported their three 10% customers as Cisco 11.5%, and IBM and Lucent around 10% each. I don't recall hearing Lucent's name disclosed before, especially at this level of work.
Next Q will see revenues from Solectron's own operations grow by about $250 million, plus SMOD's contribution for an entire Q. I think Solectron is still targeting a $20B revenue rate for their FY2001 starting next September. They still will do much better than 50% top line growth if they hit that target.
The parts shortage appears to be an industry-wide problem, and I imagine will hit the smaller players dis-proportionately hard... they don't have as much bargaining power with suppliers. The outsourcing by the big telecoms seems to be moving forward behind the scenes with less fanfare as well.
We will likely see a market reaction to the parts shortage issue.
Paul |
