From the Toronto Star:
thestar.com
Rising EMG ready for TSE debut
Manufacturer aims to be next electronics star
Tyler Hamilton
TECHNOLOGY REPORTER
Electronics Manufacturing
Group Inc. is frequently
called a ``baby'' Celestica,
but after four years of stellar
growth, this manufacturer of
high-tech products is rapidly
approaching its teenage
years.
Tomorrow, Alberta's fastest
growing company begins
trading on the Toronto Stock
Exchange, giving it a much
higher profile and greater
exposure to institutional
investors.
In April, the Calgary-based
firm will open its fourth product-assembly plant to meet the almost
overwhelming demand for contract manufacturing jobs. The new facility
will be its second location in Markham, complementing two plants based
in Calgary.
On top of this, EMG has more than doubled its employee count to over
400 in less than four months, and is expected to report fiscal 2000
revenues of more than $30 million when its year-end results come out in
mid-February, compared to $12.5 million last year and a meagre
$400,000 in 1997.
``We're getting busier and busier,'' said David Snell, 34, the young
co-founder, chief executive officer and president of EMG. ``We would
like to be a $500 million company (in terms of revenues) five years from
now.''
One need only look at the phenomenal success of contract manufacturers
such as Toronto-based Celestica Inc. or C-Mac Industries Inc. of
Sherbrooke, Que., to find the proof in the pudding.
Both companies exceeded analysts' expectations last week when they
released their year-end earnings, and both companies issued bullish
guidance for 2001.
With about $13 billion in revenues expected in 2001, Celestica has
become one of the largest and most profitable high-tech companies in
Canada. It has done this by manufacturing communications and computing
equipment for blue chip customers such as Nortel Networks Corp., Dell
Computer Corp. and Motorola Inc., to name just a few.
C-Mac, a smaller rival to Celestica, is also taking advantage of the
tremendous growth in the electronics manufacturing services or EMS
market.
EMS companies are basically electronics outsourcers that develop and
assemble products for companies that find work too expensive and
distracting to do themselves.
``I love the sector,'' said Rob Fia, an analyst with Harris Partners Ltd. in
Toronto, who recently initiated coverage of EMG with a ``buy'' rating.
``It's almost success by association, by just being in the industry.''
Fia said the general doom and gloom in the tech sector is actually playing
into the hands of companies such as EMG and Celestica. He said earnings
warnings, an economic slowdown and plunging stock prices have
combined to hurt many technology companies, forcing them to look for
cost savings.
One way to gain efficiencies is to outsource non-core operations such as
electronics manufacturing. ``You saw that with Celestica gaining that big
($1 billion U.S.) contract from Motorola,'' said Fia.
Whether it's cell phone providers such as Qualcomm Inc., network
equipment makers such as Nortel or computer makers such as Dell, more
and more companies are off-loading the manufacturing parts of their
business.
Investment firm Bear Stearns & Co. estimates the manufacturing service
industry will grow to about $350 billion (U.S.) in five years.
``Half of that will go to the small to mid-tier EMS companies,'' said Fia,
pointing out the existence of a whole world of smaller, lesser-known
technology companies that require outsourcing just as much as the big
guys. ``The smaller companies will be taken up by companies such as
EMG.''
For Snell, a professional engineer educated at the University of Alberta
and former vice-president of Calgary-based Wi-Lan Inc., going after the
smaller contracts is a key part of his strategy.
EMG has more than 80 different customers, with the top five accounting
for 55 per cent of revenues and the top 20 representing about 80 per cent.
The rest, said Snell, are seed contracts that have the potential to be the
``next big thing''.
Currently, the company is making satellite-location modules for
Handspring Inc.'s popular Visor hand-held computing device. EMG also
has contracts with such well-known Canadian firms as Novatel Wireless
Inc. and Comdev International Ltd.
EMG's stock rose 50 cents (Canadian) yesterday to $6.20 on the
Canadian Venture Exchange. Shares have jumped nearly 28 per cent in
the past two days leading up to the TSE listing.
Snell said the listing is symbolic for the company because it's part of a
maturing process that builds confidence among all players.
``It signals in a lot of ways the transition from a startup to a more mature
company,'' he said. ``We would love to become the next Celestica.'' |
