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

To: MGV who wrote (2346)	5/7/2000 2:28:00 PM
From: Marc	Read Replies (1) \| Respond to of 2542

5/05/00 - Most CEMs beat Wall St. estimates May. 05, 2000 (Electronic Buyers News - CMP via COMTEX) -- As expected, the March quarter was a strong one for the electronics manufacturing services (EMS) industry. Earnings for most of the top-tier companies exceeded consensus expectations, revenue growth averaged 72% year-over-year, and the outlook for a continuation of strong earnings growth appears favorable. Consensus EPS estimates were raised for Celestica, Flextronics, Sanmina, and SCI Systems. Backlogs for many EMS companies have reached record levels. For the past few months, several companies noted an inflection point in orders, especially from communications customers. In addition, industry consolidation continues, and according to several EMS management teams, the pipeline for OEM asset-divestiture opportunities remains robust. Typically, the purchase of manufacturing sites from OEMs has been accretive to earnings. While technology stocks took a beating in April, the leading companies in the EMS sector have held up relatively well. While the S&P 500 is off 1% year-to-date and the Morgan Stanley High Tech Index (MSH) is up 7% during the same period, the top-tier EMS companies (Celestica, Jabil Circuit, Flextronics International, Sanmina, Solectron, and SCI Systems) on average appreciated 18% year-to-date. Flextronics has been the best performing stock, up 53% year-to-date. These EMS stocks are off only 7% to 13% from their 52-week highs vs. a pullback of 22% for the MSH index. We believe that many top-tier EMS companies can continue to outperform the market averages this year, in part due to strong and accelerating earnings growth. In addition, the valuations for many EMS stocks appear relatively attractive, particularly compared with other technology sectors, since they are trading at multiples roughly in line with their near-term growth-rate forecasts. Consolidation remains an important theme in the EMS industry. Sanmina announced plans to acquire Hadco for about $1.3 billion in June or July. According to management, the motivation for the acquisition is to add printed-circuit-board fabrication capacity, leverage complementary customer bases and technology capabilities, gain manufacturing sites in strategically important geographic locations, and add to its management team. Solectron recently announced the largest OEM-asset purchase in the industry. The company plans to pay about $900 million to acquire assets from Nortel Networks in four locations, and it is in discussions to acquire three additional sites in Europe. In conjunction with the asset purchase, Solectron has entered into a 4-year, $10 billion supply agreement. This agreement includes the transfer of outsourcing programs from certain Nortel manufacturing facilities to various Solectron sites. In addition to recent asset divestitures by Alcatel, Bosch, Fujitsu-Siemens, Ericsson, and IBM, Lucent Technologies recently announced plans to "expand its relationships with contract manufacturing partners," and it is considering the sale of certain manufacturing facilities. While the timing of incremental business for its EMS partners and the sale of manufacturing sites is unclear, it is encouraging that another large telecommunications-equipment company plans to increase its use of electronics manufacturing services. The recent book-to-bill data from IPC (Association Connecting Electronics Industries) for the U.S. printed-wiring-board industry also points to strong orders and a favorable outlook for the EMS industry. The book-to-bill ratio for February was 1.15, a nice uptick from a range of 1.0 to 1.05 during 1999. Orders also increased 25% year-over-year. The book-to-bill ratio in March surged to 1.22, and orders increased more than 50% year-over-year. This was the fifth consecutive month of double-digit order growth, which bodes well for accelerating sales growth in future months. ebnonline.com -0- By: Shelby A. Fleck; Morgan Stanley Dean Witter & Co. Copyright 2000 CMP Media Inc.