Business Week article on why FLEX and SLR should do well in 2001, even in a slowing economy.
Business Week: January 8, 2001
Industry Outlook 2001 -- Information
Year of the Outsourcer
Personal computers. Networking equipment. Cellular phones. The law of gravity is asserting
itself in these once booming electronics sectors. So it stands to reason that 2001 should also
be harsh for companies like Solectron (SLR), Flextronics (FLEX), and Celestica (CLS), which
have grown explosively as contract manufacturers of this hardware.
But it probably won't. Analysts expect at least 25% growth in electronics manufacturing services
(EMS), to some $127 billion. In fact, the biggest EMS companies, which boast dozens of
factories worldwide and make everything from servers to set-top boxes, could expand by 35%,
predicts Alameda (Calif.)-based Technology Forecasters Inc.
The reason: Even though overall demand may slow for tech products, financial pressure will
increase on the likes of Hewlett-Packard (HWP), Lucent (LU), and Motorola (MOT) to cut costs.
``Getting rid of factories is a great way to do it," says CEO Michael E. Marks of Flextronics
International Ltd. While Marks concedes the first half of 2001 could be quiet, he expects big new
contracts to take up the slack. Chief Financial Officer Susan S. Wong of Solectron Corp., which
struck a four-year, $10 billion production deal with Nortel Networks Corp. (NT), concurs: ``There
are a lot more deals in the pipeline,'' she says.
Despite already rapid growth, analysts say outsourcing still is gaining momentum. Technology
Forecasters says worldwide electronics companies outsourced 13% of the $772 billion of
goods they sold in 2000. European and Japanese giants, from Siemens (SMAWY) to Sony
(SNE), have just started. ``In my mind, Asia is the next big wave,'' says J. Marvin MaGee,
Celestica Inc.'s global vice-president.
The diverse product range of major EMS providers also should provide a cushion. As demand
for PCs or cell phones tapers off, many contractors can shift production to handheld devices,
data-storage equipment, or whatever else is hot. So, however 2001 shapes up, EMS
companies look likely to benefit. |
