From Bank of America Conference ...
Outsourcing Paradigm Provides Increased Visibility, Drives
Continued Momentum In Contract Manufacturing Sector, Says Banc of America Securities Analyst
SAN FRANCISCO, Calif., Feb. 3 /PRNewswire/ -- The following is being
issued by Banc of America Securities, a member of the National Association of
Securities Dealers, CRD number 26091:
As its major players transform themselves into fully integrated end-to-end
manufacturing partners, the contract electronic manufacturing (CEM) industry
is evolving from its previous role of supplying customer buffer capacity,
according to Banc of America Securities' senior data storage analyst, Paul
Fox.
(Photo: newscom.com )
"Today these companies are managing the supply chain and operating on
tight schedules and budgets to produce increasingly sophisticated products,"
Fox said. "This leaves the customers to focus on what they do best -- product
development, marketing and brand management."
Fox made his comments to investors yesterday at the 17th Annual Banc of
America Securities Technology Conference, which runs through Friday,
February 4 at the Ritz Carlton in San Francisco. This year's Tech Week will
feature 195 presentations from public and private companies representing a
broad spectrum of investment opportunities in communications services,
computer and peripherals, distribution, networking, semiconductor, software
and Internet industries.
The top contract manufacturers are poised for sustainable growth
significantly above already robust industry rates, which in turn should
translate into continued strong stock appreciation, said Fox. In fact, CEMs'
stock prices have significantly outperformed the market by several orders of
magnitude over the past several years. In 1999, CEM stocks rallied
170 percent, in comparison to 19 percent for the S&P 500 Index.
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 their original equipment manufacturers. These
customers increasingly outsource manufacturing to contract manufacturers 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 customers are eager to leverage, Fox said.
The top ten contract manufacturing companies are expected to grow their
revenues even faster than the overall industry. Posting revenues of more than
$33 billion in 1999, these ten players are expected to generate over
$85 billion by 2002, said Fox.
Fox pointed out that contract manufacturers generally grow 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 customers, such as those from
IBM and Hewlett-Packard, in return for long-term volume purchase agreements
from the customers. Such acquisitions are typically low risk and inexpensive,
Fox noted. Other key factors to contract manufacture growth include
establishing low cost manufacturing sites in Mexico, Brazil, Asia and Central
Europe, and maintaining diverse customer and revenue mixes.
Fox recommended the stocks of the seven largest players in the CEM
industry, which altogether account for 95 percent of its market
capitalization: C-Mac Industries (Toronto stock exchange: CMS, Strong Buy)*,
Celestica Corporation (NYSE: CLS, $49.13, Strong Buy)*, Flextronics
International Ltd. (Nasdaq: FLEX, $54.81, Strong Buy)*, Jabil Circuit, Inc.
(NYSE: JBL, $69.13, Strong Buy)*, Sanmina Corporation (Nasdaq: SANM, $111.13,
Strong Buy)*, SCI Systems, Inc. (NYSE: SCI, $72.38, Strong Buy), and
Solectron Corporation (NYSE: SLR, $81.75, Strong Buy)*. |
