I'm not Paul, but I do have the answer, at least concerning Flextronics:
Flextronics revenue by manufacturing location roughly splits as follows:
25% Americas (US, Mexico), 25% Sweden, 25% Hungary, 25% Asia
Flextronics revenue by selling location roughly splits as follows:
40%+ US, 30%+ Sweden, 25%+ Hungary, less than 5% Asia
Most of what Flextronics makes in Mexico and Asia is shipped back to the US. They have facilites in Mexico and Asia not because the product is being sold there, but because of low cost labor. The products that they manufacture for US companies that are labor intensive are either sent to the Asian or Mexican facilities where they can be made cheaper. The less labor intensive/more technologically intensive products are made in the US in San Jose.
To answer your question directly, demand from Flextronics Asian facilities is primarily from the US market, not from the Asian markets. It is just made there because it is cheaper, and then it is shipped back to the US and sold in $US.
Also, currency devaluations actually work for Flextronics advantage for 2 reasons:
1) They become lower cost manufacturers, thus giving them the ability to win more business
2) As labor costs and other overhead drops, which is paid in local currency, and selling prices stay fixed (they invoice US customers in $US), they become more profitable
Take a look at the chart of a company called Safeskin (SFSK). This thing is taking off like a rocket ship. These guys manufacture latex exam gloves primarily for hospitals. All their manufacturing capacity is in Thailand and Malaysia. As these currencies have devalued, their manufacturing costs have correspondingly dropped by a large amount. At the same time, they sell everything back to the US in $US, so their top-line realization is unaffected. Net effect is gross profits and margins are exploding, and so is the stock price. Flextronics is getting the same sort of benefits, albeit not to the same degree. Illustratively, however, it is a good example of the positive effect that currency devaluation in Asia can have.
I am also not exactly sure if it is the same case for SCI, Solectron, etc. as far as where things are being shipped. Maybe their IR department might have an answer. I am just glad to know that Flextronics is pretty insulated from the whole issue as far as I can tell from the data/speaking with people.
My opinion. |
