Too all here is another story,................................................................................Networking Slump Spreads To
Circuit-Board Makers
By Lisa Bransten
The Wall Street Journal Interactive Edition
SAN FRANCISCO (Dow Jones)-- Fears about weakness in the
telecommunications and networking sectors weighed heavily on some of the
suppliers to those industries, including circuit-board makers Solectron Corp.
(SLR), Jabil Circuit Inc. (JBIL) and Sanmina Holdings Inc. (SANM).
Solectron was the hardest hit of the group, with its NYSE-listed shares
falling 4 7/16, or 11.8%, to 33 5/16 on volume of nearly 4.6 million,
compared with average daily volume of 410,900. Sanmina shed 3 5/16, or
4.9%, to 63 3/4, and Jabil lost 4, or 8.6%, to 42 9/16; both companies'
shares are listed on the Nasdaq Stock Market.
But some analysts, such as Steven Ossad of UBS Securities Inc., see buying
opportunities in the circuit-board group, which they expect to continue to
grow even if there is some weakness among their customers. That's because
the trend among data and telephone networking companies to outsource the
making of circuit boards to such contract manufacturers.
Sanmina, Jabil and Solectron have all been high-fliers this year. From the
start of the year to late September, when Sanmina hit a 52-week high of 90
3/4, the stock was up about 60%. Jabil and Solectron were up 258% and
71% respectively from the start of the year to early October.
Still, Ossad said "the reaction [Wednesday] is totally beyond reason."
The declines in these companies is a continuation of the weakness seen for
the last two months after worries emerged about excess inventories at the
networking and telecommunications companies.
On Tuesday, the shares of several companies that make semiconductors for
networking companies moved lower on news that the leading member of
that sector, Altera Corp. (ALTR), would report a third consecutive quarter
with little profit growth. Wednesday's sharp declines were triggered by
warnings from networking companies Cabletron Systems Inc. (CS) and
3Com Corp. (COMS) Both companies warned Tuesday that profits in the
recent quarter would be weaker than forecasts.
3Com attributed the profit shortfall to an inventory clear-out. Both of those
stocks were lower Wednesday. 3Com lost 3/8 to 34 15/16 on Nasdaq, and
Cabletron slipped 3/4 to 14 15/16, adding to Tuesday's loss of 7 1/2.
But of the three suppliers, only Jabil has much exposure to the companies
making warnings, Ossad said. He believes most analysts have already
accounted for any weakness the company might face due to inventory
problems at 3Com.
He said he expects all three companies to meet analysts' profit estimates for
the current quarter, although there is some question on the Street about
whether Solectron might underperform. Ossad has a buy rating on Sanmina
and Solectron and said shares in those companies could rise 30% to 50% in
the next 12 months.
Keith Dunne, an analyst at BancAmerica Robertson Stephens, also said he
believed Wednesday's losses created a buying opportunity for Sanmina.
Even if there is weakness in the market for data-networking products, the
company should win more clients as the outsourcing trend continues, he
said.
Investors are 'throwing the baby out with the bath water,' he said.
In the next year he expects Sanmina's shares to trade in the 85 to 90 range
based on the company's record of about 44% profit growth over the past
three years.
-Lisa Bransten; 212-416-4750
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