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

To: rich evans who wrote (417)	12/8/2000 3:35:12 PM
From: Marc	Respond to of 493

Merrill had a similar report yesterday: This morning a competitor voiced concerns regarding shortened lead-times for products at Cisco Systems among some of the EMS providers, including Solectron (12% of Q4:F2000 revenue). This resulted in a competitor downgrade of Solectron this morning. We strongly disagree with this analysis as a decline in lead times at Cisco Systems may be occurring because the company is able to procure commodity components faster in a loosening component environment which will allow the company to work down its raw material inventory. Some of the EMS providers are currently holding this raw material inventory as the component situation has delayed shipment of Cisco product and taken away revenue from companies such as Solectron. Essentially, we believe this change will result in a decline in raw material inventory levels at the EMS providers and more robust demand. For example, we believe Solectron currently holds some of the printed-circuit-board components in inventory but a tight component environment has held back shipments. We now believe a better component environment (which shrinks lead times) will allow Solectron to experience stronger than expected demand from Cisco Systems over the next twelve months. In fact, demand from Cisco Systems is so capacity constrained with its EMS partners that the company has recently announced new outsourcing agreements with 3 new EMS providers in the past few months. We have indicated several times that reading anything more into the linearity in demand at the leading EMS providers can be very misleading as these companies become more diversified in both end-market and customer exposure. We believe today provided the market with a perfect example. Solectron is involved with hundreds of programs with Cisco Systems in multiple geographies. This is why we believe one of the positive characteristics of a leading EMS provider such as Solectron is its diversified portfolio of customers, industries and technology segments. Looking out over the next year, we expect Solectron to be an even bigger player in the optics area with new programs and customer relationships. Currently, we estimate that Solectron has about two dozen optical customers, one of the larger portfolios among the leading EMS providers. Furthermore, Solectron has acquired excellent optics capabilities through recent acquisitions of facilities from Ericsson and Nortel Networks. We continue to believe Solectron is on track to meet or exceed expectations in the November quarter and our estimates moving forward are very conservative. Trading at just 21x our C2001 EPS estimates versus 25x for the Merrill Lynch EMS Universe and 33x for the OEM Tech Barometer, we particularly use the current weakness as a buying opportunity and reiterate our Buy/Buy rating.

To: rich evans who wrote (417)	1/2/2001 4:24:01 PM
From: Dave Gore	Read Replies (1) \| Respond to of 493

Business Week article on why SLR and FLEX should do well in 2001, even in a slowing economy. Business Week: January 8, 2001 Industry Outlook 2001 -- Information Year of the Outsourcer Personal computers. Networking equipment. Cellular phones. The law of gravity is asserting itself in these once booming electronics sectors. So it stands to reason that 2001 should also be harsh for companies like Solectron (SLR), Flextronics (FLEX), and Celestica (CLS), which have grown explosively as contract manufacturers of this hardware. But it probably won't. Analysts expect at least 25% growth in electronics manufacturing services (EMS), to some $127 billion. In fact, the biggest EMS companies, which boast dozens of factories worldwide and make everything from servers to set-top boxes, could expand by 35%, predicts Alameda (Calif.)-based Technology Forecasters Inc. The reason: Even though overall demand may slow for tech products, financial pressure will increase on the likes of Hewlett-Packard (HWP), Lucent (LU), and Motorola (MOT) to cut costs. ``Getting rid of factories is a great way to do it," says CEO Michael E. Marks of Flextronics International Ltd. While Marks concedes the first half of 2001 could be quiet, he expects big new contracts to take up the slack. Chief Financial Officer Susan S. Wong of Solectron Corp., which struck a four-year, $10 billion production deal with Nortel Networks Corp. (NT), concurs: ``There are a lot more deals in the pipeline,'' she says. Despite already rapid growth, analysts say outsourcing still is gaining momentum. Technology Forecasters says worldwide electronics companies outsourced 13% of the $772 billion of goods they sold in 2000. European and Japanese giants, from Siemens (SMAWY) to Sony (SNE), have just started. ``In my mind, Asia is the next big wave,'' says J. Marvin MaGee, Celestica Inc.'s global vice-president. The diverse product range of major EMS providers also should provide a cushion. As demand for PCs or cell phones tapers off, many contractors can shift production to handheld devices, data-storage equipment, or whatever else is hot. So, however 2001 shapes up, EMS companies look likely to benefit.