Contract Manufacturers Up on Optimism
Mon Mar 4, 4:41 PM ET
By Ben Berkowitz
story.news.yahoo.com.
LOS ANGELES (Reuters) - The shares of top-tier contract manufacturing companies, battered recently by
a slump in telecommunications spending, were up sharply on Monday, as new data released on Friday
showed an expansion in overall manufacturing for the first time in 18 months.
Shares in Flextronics International Ltd. closed up 14 percent at $17.20 on Nasdaq. Solectron Corp. shares
closed up 11.6 percent at $9.25 on the New York Stock Exchange. Sanmina-SCI Corp. shares closed up
23 percent at $12.69 on Nasdaq. Shares in Celestica Inc. closed up 14.8 percent at $37.33 on the NYSE.
Jabil Circuit Inc. shares closed up 17.1 percent at $22.77 on the NYSE.
Flextronics and Sanmina-SCI shares were both in the 25 most-actives on the Nasdaq, and Sanmina-SCI
was among the percentage gain leaders.
Solectron was on the NYSE most-actives list, and it was also among the NYSE top percentage gainers,
along with Jabil Circuit and Celestica.
The Institute for Supply Management on Friday released its monthly Purchasing Managers Index, with a
level of 54.7, far ahead of Wall Street's expectation of 50.9.
A level above 50 indicates growth in the manufacturing sector, which makes up about one-sixth of U.S.
economic activity. Friday's level was the first time the index passed 50 since July 2000.
The ISM's New Order Index also rose, reaching 62.8 in February from 55.3 in January, putting it at its
highest levels since 1994.
Bear Stearns analyst Thomas Hopkins, who follows the contract manufacturing sector, said the ISM data
takes far more into account than just contract electronics manufacturers, but he said the sentiment of the
data was still a good sign.
"To the degree that it is indicating an economic bottom, it transfers, sure," he said. "People are more
optimistic in general about the economic recession and bottoming."
Hopkins also said the data on orders was a good sign because contract manufacturers have been hard at
work reducing inventories, meaning more new production when the sector's recovery kicks in.
BOOK-TO-BILL ALSO UP
The ISM news came days after printed circuit industry trade group IPC released the printed circuit board
book-to-bill for January, showing a level of 1.01, the index's first time over 1.00 since December 2000.
Thomas Weisel Partners analyst Jim Savage, in a note to clients on Monday, said the new index figure
indicated production was likely to increase for high-technology products.
Savage's comments came as part of a note reiterating his "strong buy" rating on Jabil Circuit and saying he
expects the company to meet estimates for the current quarter.
The electronics manufacturing services sector derives most of its $100 billion-a-year business from
high-volume, low-margin production of products like cell phones, data and networking products.
The printed circuit business was worth $42.7 billion globally in 2000, with Japan and the U.S. the largest
markets.
The rebound comes after three separate brokerages cut calendar or fiscal 2002 estimates for the entire
sector within the space of about two weeks.
Lehman Brothers, Deutsche Banc Alex. Brown and ABN Amro all cut estimates for the sector, based on
what they saw as continued weakness in the long-slumping telecom sector and evidence that any recovery
for EMS companies in general will take longer than had been expected.
Those downgrades have driven both Solectron and Sanmina-SCI to multiyear lows. Solectron at one point
on Thursday traded at levels unseen since May 1997.
After falling sharply in 2001, the sector has been battered again in early 2002. For the year, Sanmina
shares are down 36 percent, Flextronics shares are down 28 percent, Solectron shares are down 18
percent, Celestica shares are down 8 percent and Jabil shares are even.
Part of Monday's bounce came because the sector was oversold and EMS stocks tend to be volatile in
whichever direction the broader markets are moving, Hopkins said.
"The Nasdaq's rallying, right?" he said. "That's just the nature of how they trade, unfortunately."
(With additional reporting by Daniel Sternoff in New York) |
