Good Article on Flex & State of EMS Industry
(Article edited for length - PQ)
Cost to keep Flextronics: $13.5M
Amanda Jones / Raleigh, N.C. Nov 1, 2002
YOUNGSVILLE – State and local economic developers have committed as much as $13.5 million worth of cash and non-cash incentives to keep Flextronics from moving its North Carolina operations to another state. State recruitment documents reveal that North Carolina put together the package late last year to fend off an effort by the state of Georgia to recruit Flextronics to that state. Even though Georgia offered a package worth about $23 million, North Carolina won the battle when Flextronics in February pledged that it would create 1,500 new jobs over the next three years and spend $20 million to expand its 70-acre Youngsville campus into its East Coast headquarters. <snip>
<snip> An industry slump
The company has been suffering alongside competitors such as Celestica, Solectron, Sanmina SCI and Jabil Circuit since sales took a sharp dive with the onset of the recession in early 2001. Flextronics has closed several plants and laid off more than 10,000 workers around the world.
A year and a half later, the EMS industry is still floundering from the severe downturn in sales of products to customers such as IBM, Cisco Systems and Ericsson. EMS companies have closed one out of five of their facilities, resulting in more than 97,000 job layoffs, according to a report from Bear, Stearns & Co.
Analyst John McManus with Needham & Co. says it could be the summer or winter of 2003 before the EMS industry starts to experience a real recovery.
Goswick says Flextronics would not have been so aggressive in mapping out its expansion plans had it been fully aware of the severity of the downturn. "I believe if Flextronics knew the economy was going to turn around the way it has, they would not have announced a tremendous increase in labor," he says. <snip>
Awaiting turnaround
<snip> According to more than a dozen industry analysts, Flextronics International has emerged as one of the more efficient electronic manufacturing services companies with the fundamentals in place to weather the economic slowdown.
The company restructured and positioned itself to gain market share throughout the downturn, says Chris Whitmore, an analyst with Deutsche Bank Securities. "They have a significant lead in China versus their competitors," Whitmore says. "China is one of the lowest cost regions to make those products."
Whitmore expects the company to keep manufacturing of high-end products in North America and Western Europe. "They need to be designing where the activity is," Whitmore says.
"Flex will co-locate where the customers are," he says. "Many of those customers are in North Carolina."
Flextronics is constructing a 450,000-square-foot plant in Doumen and a 500,000-square-foot plant in Shanghai with an aim to increase employment to 30,000 in China and 45,000 in all of Asia, says Needham & Co.'s McManus.
"They have positioned themselves in China to execute a high volume, low mix business volume," McManus says.
Sykes at Flextronics says the jobs going to China are for the manufacture of the company's higher volume, well-developed and stable products.
"Here, the products are more complex and lower volume," Sykes says. "We hope the products we are working on today will get to that level and migrate to China. It enables our local guys to work on the next generation of product," NcNanus sats,
Flextronics reported net income of $34.7 million for the quarter ended Sept. 30, compared with a net loss of $329.8 million a year earlier. Sales rose to $3.34 billion from $3.24 billion a year earlier.
The company has reported that it expects earnings of 9 cents to 12 cents per share on revenue of $3.4 billion to $3.6 billion for its third fiscal quarter ending in December. However, the company also is expecting a slow Christmas season and anticipates slower growth for the quarter ending in March. |
