Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Sam who wrote (2501)	3/28/2001 8:13:01 PM
From: Clouseau	Respond to of 2542

Well, here is some fodder for discussion...is it really this bad? Some on the Street apparently think so. -------------------- Where Will Contract Manufacturers Bottom? By Herb Greenberg Senior Columnist Originally posted at 10:03 AM ET 3/21/01 on RealMoney.com Solectron (SLR:NYSE - news). Flextronics (FLEX:Nasdaq - news). Jabil Circuit (JBL:NYSE - news). ACT Manufacturing (ACTM:Nasdaq - news). The list goes on: Companies that assemble everything from PCs to cell phones. As recently as a month or so ago they were supposed to benefit from an increase in outsourcing by tech firms looking for ways to lower costs. However, with demand slowing, there's not much to outsource! And that has left the contract manufacturers stuck with loads of inventory and earnings projections they don't have a prayer to meet. So, where do these stocks go? Back to my source, the same one who raised red flags here months ago about contract manufacturers, and who thinks companies like these trade at or at some multiple to their tangible book value. (Tangible book is book value minus intangibles, like goodwill.) Solectron's tangible book, for example, is $6 per share. It's a quality company, though, so how much risk does it have at its current price of $19.09? According to our source, maybe the low teens. Ditto for Jabil, the industry class act, which has a tangible book of $6.70 per share. (Our short-selling source would probably cover at $13 or $14. Jabil closed at $18.12 Tuesday.) Flextronics? Tangible book is $4.80 per share vs. the current price of around $19. Will it go that low? Hard to say. "It's not impossible that one of the majors could see some real distress, because margins are skinny and costs are fairly fixed." What does that mean for second-tier players like our friends at Act Manufacturing, which trades at $13.12 and which has a tangible book of around $3.85 per share? For a clue, look at Manufacturers' Services, (MSV:NYSE - news) which came public last summer, quickly blew a quarter, and now trades at $3.31, which is below its tangible book of $5. Both companies are about the same size, and both made money last quarter, but MSV has a stronger balance sheet. "If investors got this bent out of shape over MSV," says our short-selling source, who actually owns a little MSV, "what will they do if Act blows up?" Great question.