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

To: P.T.Burnem who wrote (221)	12/16/1997 4:29:00 PM
From: kolo55	Read Replies (2) \| Respond to of 493

This is the bear case. 2)You wrote: the average(?) contract lasts only 30 days... Another word, SLR's revenues and earnings visibility are extremely low. They assume all the risk. One day orders may dry up and kaboom! - the stock will implode. With the economy slowing down, SLR is a great short. I guess this is what the bears are thinking. But lets be realistic. Most of Solectron's customers don't have manufacturing capacity anymore to pick up the work. So in order for Solectron's orders to dry up, these customer's unit sales will have to drop to zero. If HP, Sun, IBM, Ericsson, Cisco, 3Com, Bay Networks, Toshiba etc etc have their unit sales drop to zero, this country has big problems. This is a pretty extreme case. I think a worst case is flat revenues for these customers, in which their margins and pricing will come under pressure. But if prices come down, unit sales increase, (Law of Supply and Demand). And since Solectron revenues will track closer to unit sales, Solectron will still see growing revenues. In fact, I believe the market is simply expecting slower growth from Solectron's customers, but still growth. Furthermore, since other companies are still in the process of outsourcing, Solectron should generate 15-25% growth just from outsourcing. In a downturn, the outsourcing trend should actually strengthen. In the last downturn, SLR and SCI Systems growth was unaffected. In the past, although many mature contracts can be cancelled with 30 days notice, this rarely happens. In addition, Solectron gets longer term contracts of 2-3 years if they are buying a facility (like Brazil from Ericsson or Texas from TI) or building a grassroots facility (like Mexico). The average contract at Solectron lasts much longer than 30 days. You misquoted Nishimura. Bottom line, worst case growth is 20-25%. Nishimura expects Solectron to grow 30-40% as the 5 new facilities they just built come on-line. The primary reason they missed the earnings estimate was start-up costs at these new facilities. Finally revenue growth in the last Q accelerated over the previous quarter, and backlog grew over 8% over last Q. The numbers and the contracting relationship and history simply don't support your assertions and the bear case. BTW, SLR finished up 6 points. If you still want to short, you'll get more now. Paul