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

To: jeffbas who wrote (1556)	5/31/1998 12:03:00 PM
From: Paul Senior	Read Replies (1) \| Respond to of 2542

I, too, see the ECMs as better investments than some of their customers. "Jabil, Flextronic, et al are commodity producers/ manufacturers and though they do well, rank behind the companies they do the manufacturing for. (Like the auto companies and the steel manufacturers.)" Well my opinion is that suppliers to many industry titans have better margins, better ROEs, higher pe's than the companies they sell to. In auto business for example- Lear (seating), Magma (parts), OEA (air bag components), and a whole bunch more -- all better investments in the past than the big three. In steel some of the measurement/control companies, steel plant construction companies, some steel component suppliers (UCR)--- all better than any of the big steel producers. Just because a purchasing company is the purchaser of a commodity, and maybe way bigger and better known and therefore maybe higher on the food chain--- that does not follow that such companies will sell at greater pe's -or be better investments - than their suppliers. I also think there is much more that needs to be considered when it is assumed that companies like JBL, FLEXF, HDCO are coming to viewed as strategic manufacturers, as was stated here. I see this happening too; but not necessarily as a trend welcomed by the customer. Essentially, the customer is giving up manufacturing responsibility to a supplier who will make the capital investments and technical innovations. The downside is that the customer's designers become further distanced (both by geography and technology) from the the manufacturing environment. Eventually, the company runs the risk of having designers who are unable to take advantage of the manufacturers' newest capabilities. To offset this, some large manufacturers make the manufacturing investments themselves and outsource their excess production capability to spread the costs. (Of course some other companies will make minimum manufacturing commitments to maintain their competitive skills while they outsource the bulk of their work.) I am saying that we have seen lots of big companies recently give big contracts (outsource their manufacturing) to JBL, FLEXF, etc. and there seems much momentum for this to continue. I hope enough for the JBILs, FLEXs, to thrive and prosper. But it does not necessarily have to happen this way. JMO, Paul Senior