Electronic Contract Manufacture (ECM) Sector Message Board

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Strategies & Market Trends : Electronic Contract Manufacture (ECM) Sector

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To: jim heger who wrote (2364)	6/28/2000 12:29:00 PM
From: Nevin S.	Read Replies (2) of 2542

Thought we might get a discussion going on this comment by Steve Kirson, a fund manager for Putnam, on ECMs. From an interview posted on The Street.com.... thestreet.com 10 Questions With Putnam OTC & Emerging Company Fund Co-Manager Steve Kirson By Ian McDonald Senior Writer 6/26/00 5:58 AM ET With tech stocks about as even-keeled as Sinead O'Connor, it's time to huddle with a pro. Steve Kirson, co-manager of the tech-heavy $10 billion Putnam OTC & Emerging Company fund with Michael Mufson ....snip 4. What are some sectors that you are staying away from? Kirson: Contract manufacturing. That in my mind is a growth commodity business because there's a big wave of outsourcing going on. I think there's definitely this wave towards outsourcing by the big telecom companies and so there are probably big chunks of revenue that are flowing through these companies. But I think one of the reasons why these telecom companies are outsourcing this business is it's a low-margin, crappy business. These guys are getting 20% gross margins at best. They can grow in an organic basis 15% at best. They're financing the rest of their growth through share offerings. And they're not beating the numbers. They're all hyped and they have huge multiples. I don't like that area at all. ....... Personally, I think he is right about this being a lower margin business but what he doesn't understand is the efficiencies that come from a) building products for multiple OEMs (greater fab utilization), b) the savings that come purchasing components in greater quantities, and c) for top tier EMS companies, the manufacturing efficiencies achieved by being involved in the design phase of the products. Also, I'm not sure he sees or values the growth here from the movement to outsourcing. Does this mean that the only "good" growth is organic growth? Talk amongst yourselves for a moment. The topic is: "Are they money managers or just everyday bone heads like you and me"?

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