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Technology Stocks : Celestica -- Ignore unavailable to you. Want to Upgrade?

To: Scott D. who wrote (240)	12/27/1999 3:53:00 PM
From: Marc	Respond to of 456

Celestica Switching Its Focus as Internet Demand Takes Off Celestica Switching Its Focus as Internet Demand Takes Off Toronto, Dec. 27 (Bloomberg) -- Celestica Inc., like its customers, is adapting to a world where fiber optics are replacing copper wires in data networks and the Internet is overhauling the way people do business. The No. 3 contract manufacturer of electronics hardware currently relies on computer pioneers like Hewlett-Packard Co. and International Business Machines Corp. for most of its revenue. By 2001, orders will be as likely to come from Cisco Systems Inc. and Nortel Networks Corp., leaders in the race to build high-speed data networks. ``Companies like Nortel want to position themselves with big players who can absorb large-capacity manufacturing,' said CT Securities Inc. analyst Pierre Boucher in Montreal. Celestica investors, including Canadian businessman Gerald Schwartz, have profited from the explosion in demand for hardware that supports the Internet. The stock has tripled this year, and Celestica's success at accommodating Internet and telecommunications-related companies will determine whether the pace can continue. The company forecasts that revenue from communications- equipment manufacturing will account for as much as 50 percent of revenue by 2001, up from 24 percent now and about 10 percent in 1997. Since beginning life in 1996 as a cast-off from International Business Machines Corp., Celestica's workforce has grown 18-fold to 18,000. It has 29 plants in 11 countries, compared with two factories in 1996. These days, the company is using acquisitions to bolster growth. Celestica has about US$1 billion that could be used for purchases -- US$488 million raised in a recent stock sale and a US$500 million line of credit. ``We have a fairly good war chest from the point of view of doing acquisitions,' Celestica President Eugene Polistuk said in an interview. Boucher and other analysts said Toronto-based Celestica will have to buy companies to maintain its competitiveness. The company has targeted US$10 billion in 2001 sales, double the US$5 billion expected this year. Farm It Out Many of Polistuk's customers say they want to farm out more of their manufacturing. Nortel Chief Executive John Roth said in January that North America's No. 2 maker of telephone equipment would cut 8,000 jobs and sell some factories as it leans increasingly on contract manufacturers. He said the moves would cut costs by US$250 million to US$300 million and speed the introduction of new products. In the nine months ended Sept. 30, US$857 million of Celestica's revenue came from communications-equipment manufacturing, more than twice the year-earlier period's US$373 million. In the latest nine months, net income was US$42.2 million, compared with a year-earlier loss of US$44.7 million. Revenue rose 61 percent to US$3.7 billion from US$2.3 billion. The business has made a fortune for Schwartz, whose 26 percent stake, held through publicly traded Onex Corp., is worth about US$2.5 billion. He and his partners paid IBM US$550 million for Celestica, whose market value is now US$9.75 billion. Some Celestica shareholders said the company is doing better than U.S. rivals such as Solectron Corp. and SCI Systems Inc. at squeezing productivity out of its plants. ``The more you can shove through the same plant, the better your margins are,' said John Bichelmeyer, a fund manager at BPI Global Asset Management in Orlando, Florida. His fund owns Celestica shares. To be sure, the industry will encounter hiccups as it grows. Growing Pains Two weeks ago Solectron said fiscal first-quarter revenue lagged some estimates, helping push Celestica shares down 10 percent in a day. Ironically, the drop stemmed in part from components shortages, which Bichelmeyer said is a sure sign of growth. By the end of last week, Celestica stock was at 53 1/8, up from a split adjusted US$8.75-a-share initial public offering. Solectron shares have risen 95 percent this year, touching a 52-week high of US$98 on Dec. 9. This year SCI shares have risen 44 percent to 82 15/16 and reached a 52-week high of 86 5/16 on Dec. 13. Celestica's revenue is expected by analysts to rise as much as 35 percent a year for the next three to five years. That's 10 percent to 15 percent above estimates for the industry, according to Technology Forecasters Inc., an Alameda, California-based researcher. The market for companies such as Celestica is expected to double to US$149 billion in 2003 from US$72 billion this year, Technology Forecasters predicts. That leaves quite a bit of room for growth, according to Technology Forecasters, which estimates Celestica's industry could handle as much as 10 times the amount of business that it does now.