I have been working with ECMs as customers of mine for about 15 years, and we must understand 1 certain fact to date.
ECM's do not and cannot have the same margins that their customers do. If it was not for buying parts very few if any would make any profit. It is currently estimated today that Large ECM's ( SCI, Avex, Jabil, Solectron ) build product for free, and make small margin on the backend buying product in volume at lower prices.
This strategy works well for commodity products ( i.e resisitor, caps, logic, memory ), but is nonexistent for Sole Source Items ( i.e. Processors, FPGA's, chipsets ).
The OEM's value of design / Marketing / Feature Differentiation is why they make Margins of 20% for Network guys, less for PC guys, and 40 to 60% gross margins for high end semiconductor guys.
It is a tribute to the great management on the parts of these companies, SCI and Jabil, that they make money at all with the current business models in place.
I still believe that these stocks are good long term stocks, because Major OEM's understand that these companies do it better and more efficiently than they do. They question becomes how profitable is it. Just look at the Price to Sales ratios of Subs and you will see what I mean.
IMHO, |
