I've dug and dug and stand by my original post.
I can't find anything out there that suggests we will get a poor report from either Solectron or Jabil. In fact, quite the contrary. Solectron started their new 500,000 square foot plant in Guadalajara in September, announced they will build a 500,000 expansion next door there, purchased the relativley small plant from Ericsson in Sao Paolo, and announced plans to expand it significantly, kept busy in San Jose, expanding their Austin, Texas facility recented purchased from TI significantly, etc etc. Jabil should hit new records right down the line. Solectron won't report until Dec 15th, and Jabil on Dec 16, and I still think they both will have good reports with positive forward looking statements.
I think that somebody took the earnings warning from 3Com last night, and knowing that 3Com has recently settled on SLR and JBIL as their two key ECM suppliers, assumed that the $400M drop in 3Com revenues would hit these stocks. But the big drop in 3Com revenues was due to USRobotics modems, and I understand that neither Solectron nor Jabil makes those modems. The main networking business at 3Com is still going great. BTW, no one customer at Solectron contributes over 12% of revenues in the past, and I doubt any one customer contributes over 10% of SLR's business today.
Finally, I don't think a company managed as well as Solectron adds as much plant capacity as they just did, and announces plans to add even more next year, without having contracts in place. the margins in this business aren't large enough to build major faciliites without having a contract in hand. Solectron and Jabil both are building big time, and should have great revenue growth next year.
The idea that an industry downturn will stop this is nonsense. The technology to manufacture electronics is changing all the time, and if a plant is over 3-5 years old, the equipment is getting outdated. The outsourcing trend will continue, because OEMs want to get off the treadmill of trying to keep their plants up to date. Most of the growth in eletronic manufacturing, will occur in the ECM companies, and a lot of older plants will be transferred to ECM companies or shut down.
This sell-off today is due to all the other negative reports in the high tech arena. But really the long term growth for ECM is intact, even with a downturn in some high tech areas. In fact as electronics prices drop, the volume of electronics goods sold should increase (law of supply and demand), and the manufactured volumes should increase.
I still think the sell-off will end on December 15 and 16.
Paul |
