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Strategies & Market Trends : Electronic Contract Manufacture (ECM) Sector -- Ignore unavailable to you. Want to Upgrade?

To: rich evans who wrote (2175)	12/13/1999 10:23:00 PM
From: Paul Senior	Read Replies (1) \| Respond to of 2542

Don't bring me into it. -g- Not only do I not understand the multiple accorded this sector, not only have I been wrong, wrong all the way up from maybe Feb., I still don't have a clue about what's going on and yet I still believe I'm right. Which is, these ECMs are essentially manufacturers with no proprietary properties that give them a sustainable competitive advantage. Coming from years in a grunt manufacturing environment, I have great difficulty seeing manufacturing stocks sell at 40-50x forward earnings. Patroller is King. Paul is the Wizard. Somebody's the sorcerer's apprentice (MGV?) I feel like an ignorant town person. But at least I'm in the story for a little bit. The only thing that's helped me is that I've learned to shut up (mostly) on the subject, just sit on it, and NOT sell any more shares. The right thing to do (maybe) - keep buying and buying -- that is/was too tough for me. Yet there still might be a few value stocks in the sector still. ("Value" by my old fogie understanding of it.) I've been nibbling at BHE (after your Value post, 11/22) with its p/bv less than 2 (per Yahoo) and "reasonable" p/sales. Also, I'm a long term holder of ELAMF, which still looks fundamentally "okay" to me. (ELAMF - a stock that has disappointed for a looong time now, but could/might/oughtta do better given the runnup in other contract mfg'g stocks.) And there's still a buyout spread with our DIIG, I believe, (haven't checked lately), for those who play that game. Meanwhile I'm diversifying and diversified. And (sigh) yes, with auto stocks too. DCN, FMO, CTB, for example. In two years I can see them up a lot. It's hard for me to say that about ECM stocks. But as I say, that's me, I've been very wrong about my favorite sector (ECM), I might continue to be wrong, and I could very well be wrong about the auto parts sector as well. Paul Senior

To: rich evans who wrote (2175)	12/13/1999 11:12:00 PM
From: kolo55	Read Replies (1) \| Respond to of 2542

Problem is with parts shortages. Solectron's revenues seemed to come in a bit light, but they hit the EPS target. I am not sure revenues were light by much, since if SMOD was included for the entire quarter, the revenues would have been $2.8 M. Also the operating income would have been $155M, and working down to the bottom line, we would have seen 39-40 cents eps on a pro forma basis. But the revenues still disappointed many, I think. Solectron says they lost over $100 million in revenues because of a parts shortage (flash memory and tantalum capacitors etc). In fact, much of the cc focused on the $400 million increase in inventory since the end of the last Q, a run-up in inventory of 40%. About 50-75M is semi-finished product waiting for parts to finish. Another 100-150M is increased ordering of parts to get bulk buy discounts and lock in supply, and another 150-175M is Y2K buffer (worried about problems at suppliers?). They expect some improvement in the next Q, but continuing shortage of parts will keep inventory turns below 8. Only in the 3rd and 4th Qs do they expect to see inventories return to more normal levels. The good news is that they reported their three 10% customers as Cisco 11.5%, and IBM and Lucent around 10% each. I don't recall hearing Lucent's name disclosed before, especially at this level of work. Next Q will see revenues from Solectron's own operations grow by about $250 million, plus SMOD's contribution for an entire Q. I think Solectron is still targeting a $20B revenue rate for their FY2001 starting next September. They still will do much better than 50% top line growth if they hit that target. The parts shortage appears to be an industry-wide problem, and I imagine will hit the smaller players dis-proportionately hard... they don't have as much bargaining power with suppliers. The outsourcing by the big telecoms seems to be moving forward behind the scenes with less fanfare as well. We will likely see a market reaction to the parts shortage issue. Paul