Hmmm, interesting question. Rate management competance.
Very difficult to do, but based on actual incidents, and concrete communication of risks and problems, based on what I know, here are some of my ratings:
Solectron= 10
No unpleasant surprises not communicated or warned about, humble management with strong backgrounds, clearly one of the best managed companies in the United States. The only repeat Baldridge Award winner. Nishimura carrying on where Winston Chen left off and I believe if he disappeared tomorrow, the management system they've built is so strong, you might not notice the difference.
Jabil= 9
Again, very straightforward management team that put together one of the best strategic plans in the sector. In the face of an overheated stock, tried to cool the fervor a bit, and the market of course overreacted. The one surprise over the last two years, was the Quantum surprise in January of 96. Quantum's decision to form a partnership with a Japanese company was almost unpredictable. The fact that after this, Quantum selected Jabil to manufacture their hottest product, DLT, shows that even here the C-S relationship was strong. I think Jabil's management is strong and deep.
Sanmina, Hadco, Smart Modular, SCI Systems = 9
Smart, tough, deep managment systems. Sansome at SCI Systems invented this sector, although he was also lucky to be in the right place at the right time (SCI made the original IBM PC). Hadco's domination in the board biz(not quite as good a biz IMO) and successful integration of Zycon speaks for itself. SMOD's excellent proprietary products really move it out of the ECM sector mainstream and into a higher margin business arena. Sanmina simply can build things others can't or don't want to take on, and their customers have an almost religious dependence on them.
Flextronics= 8
One of the best strategic plans in the sector. Accurate forward looking statements and all surprises warned well in advance. The stock took a hit last December on news of charges related to Global Village business and Singapore plant downsizing; but Marks had warned of this in his July letter that year. This is Marks 3rd CEO job, and all have been very successful. His record at Flextronics is superlative, taking the company out of a group of also-rans. He has moved the company from the point where their largest customers used to be Global Village (maker of Apple modems) and Lifescan, a division of J&J to a list of customers that now include Ericsson, Phillips, Microsoft(WebTV), Lucent, Cisco, 3Com(USR Pilot),and Ascend. These customers are some of the leaders of the high tech world. Flextronics will have grown 15 fold in his five year reign by the end of 1998, one of the fastest growing companies in the world. His letter to shareholders and press releases and interviews have kept his shareholders well informed. I wouldn't own the stock without this info, because I normally wouldn't have access to that forward looking information. Marks has as much experience in negotiating and closing major deals as anyone in the sector outside SCI,SLR, and JBIL, and seems to be particularly talented at it. Flextronics management's understanding of financials and the market is excellent. They managed the process of selling new shares and issuing bonds extraordinarily well, their timing was excellent. They also passed an intense SEC scrutiny with flying colors, IMO. My biggest concern about Flextronics was their operational management team, but with the addition of experienced operational managers in Europe, Asia, and America, Marks has put together the most internationally experienced team in the sector. A year from now, once we've seen the ability of this team to manage their international operations, I'll move the Flextronics management up in the rating.
I think your low opinion of Flextronics management is based on your assumption that the use of debt in business is a bad business practice. In this case, I believe the far worse business practice would have been to sit on your hands and ignore sector trends like managers at K*TEC, ACTM, IECE, PLXS, etc have done. They didn't see the importance of a large international presence in attracting the best ECM customers, and didn't develop a strategy to build out to a critical mass. These companies will have a difficult time putting together the breadth of services and information management systems, etc, that the best customers demand.
DII Group= 7
Excellent operational management team, with decentralized management style. Good, accurate forward looking statements issued last fall. I would rate them higher, except for the fact that I'm not sure they know what they got when they bought Orbit. If Orbit does come through the way they expect, and I can understand their strategy there, then I might consider an upgrade. OTOH, I consider the purchase of the IBM plant in Austin a real coup.
Benchmark, Plexus= 5
These seem to be some of the better managed domestic ECM companies. Their managements seem to be honest and straightforward. The recent surprise at Plexus was a bit of a blow.
IECE, EFTC, AFLX= 4
IECE is kind of low key parochial management, kind of out of the mainstream. EFTC is a lot of promotion, and I'm dubious of some of their claims on manufacturing process breakthroughs. Adflex made a poor acquistion, but made some good strategic moves in the flex sector.
ACTM= 3
When I started investigating this sector, this company was one of the most difficult to find info on (try to find the reports on SEC Edgar last winter and spring). Individual investors got almost no forward looking info, except misleading growth info. Pino seems to have a very limited vision, and was afraid to make the moves to stay competitive. The quality of their customer base is deteriorating, and they moved belatedly and in a very small way into the international market(no significant impact on the company's finacials according to the last 10Q). I, along with most of his shareholders, were completely blindsided when they lost 3Com, and his initial statements about 3Com were misleading. They knew well in advance(one year) about problems with the 3Com account, and ignored their customer pleas. Meanwhile they made completely inaccurate growth statements. Pino is limiting the company's growth due to his own lack of experience in the growth areas of the sector. He seems just to want to remain a big fish in a small pond, but the ECM sector is growing into an ocean. The only saving grace is their strong operational management, but I question their depth. Looks like a one man show to me.
SFLX=2
Issued very misleading forward looking statements, but based on their customers over-optimistic projections. Still should have warned shareholders about cyclic risks and competitive pressures. I spoke to the CFO on several occasions, and he completely downplayed the high end HDD risks and competitor expansion moves.
Sigmatron= 1
Big on promo, big on promises, misleading and inaccurate forward looking statements, and can't make forecasted revenues and earnings, not even close. 'nuff said.
DDL, GRTK= 0
The bottom feeders in this universe. Almost incompetent management teams.
CTN(CENL)= -10
By far the worst management team in the sector. Outright fraud, lies and fabrications. Total promo. Former CEO Pinez is in jail, and should be. The interim management team was honest, but not competant, issuing totally misleading statements in their zeal to turn the company. The newest management team seems to be somewhat competant, but hasn't addressed and revealed the truth about a lot of the problems facing their company. Example: their latest earnings release says they can't tell us the results from a 40% owned subsidiary because its being audited, but they think it might be losing money. They are also suing their customers.
Well, don't know if this is what you expected, but I had fun doing this write-up.
Paul |
