May 17, 1999 6:03pm
Reuters
By Lydia Zajc
TORONTO, May 17 (Reuters) - Buyers are likely to be lining up to buy the manufacturing plants Nortel Networks Corp. <NT.TO> said last week it wants to sell and fellow Canadian company Celestica Inc. <CLS.N> <CLS.TO> may be among the first in line, analysts said.
Nortel's selloff of at least 10 plants worldwide is "very positive" for the companies that make components for others as it shows telecommunications equipment makers want to farm out more manufacturing, analyst Todd Newman from Merrill Lynch said in a report released on Monday.
Last week Brampton, Ontario-based Nortel <NT.N> posted more details on the sale of some of its operations. The decision to slim down the company, first made public in January, is part of Nortel's switch to making equipment that moves data, voice and video over lines instead of voice alone.
The companies most likely to purchase Nortel plants include Toronto-based Celestica, the former manufacturing arm of IBM Canada Inc. <IBM.N>, analysts said on Monday.
Another three American companies should be in the queue: Huntsville, Ala.-based SCI Systems Inc. <SCI.N>, St. Petersburg, Fla.-based Jabil Circuit Inc. <JBL.N> and Solectron Corp. <SLR.N> headquartered in Milpitas, Calif.
A smaller Canadian company that could be in the hunt is C-MAC Industries Inc. <CMS.TO> of Montreal, analysts said.
Keith Dunne, analyst at BancBoston Robertson Stephens, said a slew of electronics manufacturing services (EMS) companies will be eager to buy. "We're expecting announcements sometime in the next month from Nortel indicating that their first tranche has been outsourced. And there is clearly enough business at Nortel that it'll go to a couple of EMS companies but I would anticipate that Celestica would be among those companies," he said.
Since Celestica sold an issue of eight million shares in February for a total of $229 million, it could afford to make significant purchases, Newman told Reuters in an interview.
Newman also wrote in his report that revenues for companies that make electronics for others will eventually rise. "We estimate sales from these sites could represent $4-$5 billion in sales on an annual basis to the EMS industry after completion of the divestitures," he said.
Nortel will wrap up its downsizing by the end of 2001. The plants are scattered throughout Canada, the United States, France and Ireland.
Last year the electronics manufacturing services industry had sales of roughly $90 million, Newman noted.
Celestica shares on Monday rose to a 12-month high of C$65.15 on the Toronto Stock Exchange but gave back some gains by day's end. The stock closed 75 Canadian cents higher at C$62.75.
($1=$1.46 Canadian)
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