Jabil Circuit (JBL) Message Board

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Technology Stocks : Jabil Circuit (JBL)

JBL 201.80

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Nov 14 9:30 AM EST

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To: rich evans who wrote (4796)	12/18/1998 2:53:00 AM
From: ccryder	Read Replies (1) of 6317

R.E., I can add several considerations regarding the OEM vs ECM business. "OEM's are not dumb..." however the risks at the ECM are not the same at the OEM. The OEM is dealing with a single customer, himself. The ECM has a multitude of customers and accross industry lines. For example JBL builds washing machine electronics and automobile electronics in addition to computer electronics. A slowdown in one segment of the economy is not necessarily a slow down in another. A second factor is that an ECM can easily choose the best production technology to use for a particular job. An OEM bringing a new product into production is faced with updating his existing manufacturing facility so that his product can compete in the marketplace or he must use his old equipment resulting in lower margins. And it is not just the new production facilities if he decides to upgrade. His engineering staff must learn new design techniques for optimizing the design to accommodate the new production tools. The ECM has engineering staff who already know their equipment and can take a customers set of requirements and design a complete product, or just a piece of it. A third factor is production timeliness and distribution networks. ECMs provide direct shipment of product to customers. JBL has the capability to change the production from one product to another in less than two days thereby reducing their customer's need to maintain an inventory of finished product. A fourth factor is economy of piece part purchases. Common inventories of piece parts across the product lines add to the economy of scale. Also factor in economy of engineering when the same chips, etc., are used for many different product. An engineer can use his knowledge of a CPU in the design of automotive electronics, microwave ovens, printers, washing machines, etc. Outsourcing is very much at the heart of our industry competitiveness. And it isn't just electronics. The automotive industry is also outsourcing. The same economies of scale and breadth exist there too. The question is when will outsourcing slow down. I think a year ago I read that 15 percent of the electronics manufacturing is outsourced. The likes of Jabil seem to me to have plenty of headroom.

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