Analysts duel over Solectron's
outlook
By Claire Serant
Electronic Buyers' News
(12/07/00, 03:13:07 PM EST)
Opposing views of Solectron Corp.'s financial health has two New
York-based analysts at odds.
Thomas A. Hopkins, an analyst at Bear, Stearns and Co. today issued
terse comments about UBS Warburg LLC analyst Scott Heritage's
decision to downgrade the Milpitas, Calif., contract electronics
manufacturer in a recent report.
Heritage lowered Solectron's rating from Buy to Hold based this week
on his concerns about near and potential longer-term issues
surrounding the world's largest CEM's relationship with Cisco and its
pending purchase of NatSteel Electronics Ltd., a Singapore CEM.
Heritage reduced Solectron's price target to $32 from $63, because he
felt Solectron would have some “weakness in its business with Cisco,
its second-largest customer,” over the next few months as a result of
“lead-time reduction” on certain Cisco products. Heritage also
expressed doubts about Solectron's NatSteel deal since NatSteel's
major customer, Apple Computer Corp., represents 50% of the
Singapore-based CEM's sales. During the week, Apple officials
indicated the company expects to have a significant revenue shortfall
due to weak PC sales.
“Apple indicating a significant shortfall exemplifies in our view the
issues that Solectron faces in its acquisition of NatSteel,” Heritage
said in the report. “Solectron will report November quarter earnings on
Dec. 18. We do not believe that what should be decent results for the
quarter will offset our near-term concerns.”
Said Hopkins; “Consider the source. This is the same analyst that
said Solectron would miss the quarter in September because gross
margins would be below expectations. He was wrong on both counts.”
In Cisco's case, Hopkins said better component/semiconductor
availability is coming on line, which will give the networking company
increased capacity to make more products.
Regarding Heritage's comments on NatSteel, Hopkins said the major
CEM was aware that Apple's volumes “would slip considerably” at
NatSteel when Solectron executives revealed their intentions to
purchase NatSteel last month.
“His point on NatSteel is disingenuous,” Hopkins said. “Solectron did
not buy NatSteel for their customer list, but rather for the substantial
capacity they have in [low-cost] Asia.”
Hopkins continued, “And in his weakest, borderline most ridiculous
comment, our competitor says that Solectron does not have as much
optical-networking exposure as some of its EMS competitors. The
focus on the end markets is not the way to look at EMS growth.
Demand for manufacturing services and incremental outsourcing is.”
Meanwhile, analysts expressed surprise at Heritage's statements and
Hopkins' response. “Hopkins must be emotionally invested in the
company that he felt he had to belittle the other analyst,” said a New
York analyst who asked for anonymity. “Heritage could be right, that
Solectron could have future problems.”
However, Mark Hassenberg, an analyst at Credit Suisse First Boston
in New York, disagreed. He said Solectron is on solid ground with its
relationship with Cisco and its NatSteel acquisition.
“NatSteel will prove to be a brilliant acquisition,” Hassenberg said.
“NatSteel makes lots of money in Asia and that's where the
fastest-growing market will be for the next five years. By buying
NatSteel, Solectron adds capacity in Asia.”
:-) |
