Electronic Contract Manufacture (ECM) Sector Message Board

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

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To: maroon who wrote (2514)	2/10/2002 7:09:06 PM
From: rich evans	of 2542

Lots of negative news about EMS industry by Tice and others which in my opinion is not justified. "They" are saying that low profits and ROIC less then cost of capital(WACC) so model is no good. As Tim Main said in latest tech conference, EMS model not understood well and that allows people like TICE and others to spread IMO false info. The margins are small because meterial and inventory cost is mostly a pass through as EMS company has very little risk on inventory which is OEM responsibility to take or pay. Thus the gross margin is only applicable really to the value add which means really a pretty good margin and good ROIC much above the WACC. And using this huge downturn as an example is unfair as it is not the norm. Only CLS and FLEX were able to overcome the reduced revs with more outsourcing. JBL did pretty well. BUT old SANM with their 72% telecom really got hit. But now I think we will see the EMS models metrics return with good growth and profits from the electronics rebound plus more outsourcing plus more services from design to repair. JMHO. Rich

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