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

To: kolo55 who wrote (926)	12/3/1997 3:43:00 PM
From: 18acastra	Read Replies (1) \| Respond to of 2542

Thank you Mr. Market for another wonderful buying opportunity!!! I strongly agree with your post. Clearly, a slow down in the global economies is not good for ECMs at the fringes, but it really doesn't matter. The story with the scale ECMS (FLEXF, JBIL, SLR, SCI) continues to be winning huge hunks of outsourced business. At these valuations, you are buying companies (especially FLEXF, lowest multiple, fastest growing, most earnings upside, but also most misunderstood) at huge discounts to their sustainable growth rates. ECMs have become strategic extensions of their customers and their moves to virtual organizations. I spoke with a major customer of one of the above mentioned ECMs. They videoconference with each other every morning and are directly linked through their MRP systems. The ECM is a strategic extension of the OEM, and because of the level of investment OEMs now have in their CEMs, switching costs are extremely high. Over time, OEMs will become even more tightly linked with CEMs as part of their overall strategic plans due to ever shortening product lifecycles, time to market pressure, and manufacturing efficiency issues. My opinion.

To: kolo55 who wrote (926)	12/3/1997 4:43:00 PM
From: jeffbas	Read Replies (1) \| Respond to of 2542

Paul, I think what is going on is that the market is currently subscribing to the view that tech companies are CYCLICAL growth companies, which is true. Such companies DO NOT deserve p/e's near their recent growth rates. In a market selloff, the Street is not willing to distinguish between companies or sectors to any great degree - except, for reasons I can't explain, ARW and AVT.

To: kolo55 who wrote (926)	12/3/1997 7:15:00 PM
From: jeffbas	Respond to of 2542

<< selloff will end on December 15 and 16 >> I am not sure that it didn't end today. Tiny anecdotal evidence is that one interesting microcap stock that I follow very closely went down this morning on low volume, snapped right back, went down again to the same point, and snapped back to close at the high bid of the day.

To: kolo55 who wrote (926)	12/4/1997 2:53:00 AM
From: Asymmetric	Read Replies (1) \| Respond to of 2542

I think the downturn in the ECM sector today was just as much, if not more so, apprehension over the apparent slowdown in the wireless communications sector, as it was with the 3Com announcement, IMHO. Note the downgrades of Ericcson and Nokia. If the communications sector slows down that is bad news for computers. From the vantage point of what I do for a living, the general feeling is that it's not software that will drive the next level of computer use, it's the communications revolution that is going to drive the next technology uptrend. Paul, first off, nobody wants the ECM stocks to go up as much as I do, and I think that pretty much sums up the general feeling of people on this thread, and the fact that most of us have a lot at stake here. The problem for me is that if I use different starting points, I end up in completely different places. If you start from the ECM companies and the sector itself, business is excellent and the long term secular trend toward outsourcing manufacturing will provide additional boost to the long term growth trend of technology. The fact that plants are located in Asia, but the products themselves are destined outside of Asia, means that if anything, cost of production will fall and profits rise through higher margins, and/or higher sales. The fact that the large ECMs are diversified among at least four to five major customers cushions the blow from product problems from any one customer. Hence all in all major trends remain intact with a few minor bumps. But if you use the Far East as your starting point, for me at least, the picture that emerges is very different. An entire global region has been thrown out of kilter and is struggling against economic collapse. Demand will fall across the board. The Asian countries will try to export their way out of the mess they're in. US companies, if not all multinationals, will face a double whammy - that of falling demand from that portion of goods that were destined for Asia, and increased competition of cheaper goods sourced from countries forced to devalue their currency. As multinationals face tougher times and shrinking profits, they'll respond by cutting capital expenditures and trimming labor. And so there should be some semblance of a domino effect. From this vantage point, it's questionable if the trends affecting the ECM sector will remain quite so positive. There is a connectedness here, but what it is and whether I've got it straight - well who knows? I know bearers of bad news, and dissenters, aren't generally viewed favorably, so I will stop here.

To: kolo55 who wrote (926)	12/11/1997 1:56:00 PM
From: jeffbas	Read Replies (2) \| Respond to of 2542

Paul, I am trying to understand why these stocks might be getting pummelled so badly (poor tech stock psychology aside), with Creditman still feeling good about the industry. I would appreciate your opinion on the following. Although one would think the Asian plants of many of these companies would be able to produce their products more cheaply, perhaps most of the output for these plants is for local markets. If demand dries up could these plants be underutilized? Next, could these plants be used instead to produce products for the domestic US market, or would shipping eat up the savings? If Asian plants could produce for domestic US, then the current busy conditions for US plants may not last. If they can't effectively cover the cost of transportation, then ECM's without Asian plants would seem to be better situated. I'd appreciate some help for this non-technical person with these questions.