Celestica Warning Isn't Seen Hurting Jabil, Solectron
By DONNA FUSCALDO / WSJ / Sept 18
NEW YORK -- Given Celestica Inc.'s (CLS) third-quarter warning, investors may be bracing for lower outlooks from competitors Jabil Circuit and Solectron when they report quarterly earnings in the next few days.
But analysts said that isn't likely to happen, since both companies don't have as much exposure to Lucent Technologies Inc. (LU) and Sun Microsystems Inc. (SUNW), the perceived culprits of Celestica's problems that led to the early Wednesday warning.
While both Jabil and Solectron count Lucent as a customer, Lucent doesn't represent 15% of sales like at Celestica, said James Savage, an analyst at Thomas Weisel Partners. "The most severe problems that Celestica has are not problems you will see at Solectron or Jabil," he said.
Earlier Wednesday, electronics manufacturing services, or EMS, company Celestica reduced its third-quarter earnings and revenue targets due to reductions from some of its largest customers.
The Toronto company now expects revenue for the period ending Sept. 30 to come in between $1.9 billion and $2 billion and earnings to be 18 cents to 22 cents a share. The company had expected revenue of $2.1 billion to $2.4 billion and earnings of 26 cents to 33 cents a share.
While Celestica declined to name the customers who had scaled back orders, analysts pointed to Sun Microsystems and Lucent, both large customers who have issued earnings warnings of their own in recent weeks.
Late last week, Lucent said fiscal fourth-quarter sales will drop 20% to 25%, or to between $2.21 billion and $2.36 billion. Wall Street had expected the company to post a loss of 16 cents a share on revenue of $2.87 billion.
Meanwhile, in August Sun Microsystems said it expects its fiscal first-quarter revenue to come in at the bottom of its previous revenue target range of a 10% to 15% decline.
Despite the warnings of two of its largest customers, news of Celestica's earnings preannouncement sent the stock down a staggering 24% recently to $14.26, and also weighed heavily on its peers.
Shares of Jabil, which reports fiscal fourth-quarter earnings Thursday, recently were off 7%, to $16.26; while shares of Solectron , which is slated to report fiscal fourth-quarter earnings Sept. 26, fell 8% to $2.44. Sanmina-SCI Corp. (SANM) shares were down 7.6% to $2.81, and shares of Plexus Corp. (PLXS) were off 7% to $12.
David Miller, an analyst at Kaufman Brothers, agreed that Celestica's warning is specific to its own exposure to Lucent and Sun Microsystems and not a prelude to what is to come at Jabil and Solectron .
"Sun is pretty much Celestica's first or second largest customer and is not a customer of Jabil or Solectron ," said the analyst. "All three have exposure to Lucent, but Celestica is the highest of everybody."
According to Miller, Jabil's results and outlook will be "fine" given the company has won enough new business from original equipment manufactures to cushion it from whatever weakness there is in the end markets.
As for Solectron , which analysts aren't expecting a significant recovery from anyway, Thomas Weisel Partners' Savage said the company should target essentially flat sales for its fourth quarter. Solectron has more seasonal business from the personal computer and printer industries than Celestica, and that could help them in the calendar fourth quarter, he said.
Kaufman and Savage do not own shares of Solectron , Jabil or Celestica. Kaufman Brothers hasn't provided any investment banking services to the EMS sector, and Thomas Weisel hopes to forge investment banking relationships with the group.
Officials at Jabil weren't immediately available to comment. A Solectron representative declined to comment. |
