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Technology Stocks : Jabil Circuit (JBL) -- Ignore unavailable to you. Want to Upgrade?

To: Ron Kory who wrote (4343)	7/19/1998 9:20:00 AM
From: Rosemary	Respond to of 6317

I don't know if this has been posted here yet: Compaq sets plan to join CEM trend Darrell Dunn Compaq Computer Corp.'s revelation last week that it intends to begin outsourcing the production of all printed-circuit-board assemblies for its desktop computers could be a multibillion-dollar boon for the contract electronics manufacturing industry. Although Compaq has long been a potential Holy Grail for major CEMs, the global PC giant has historically completed most manufacturing functions internally. "For the electronic-manufacturing-services providers, Compaq is a sizable intermediate and long-term opportunity," said William E. Cage Jr., an analyst at J.C. Bradford & Co., Nashville, Tenn. "These steps by Compaq are its initial steps, and represent the beginning of a global macro outsourcing of product-management functions similar to the programs that have been successfully implemented by other large, multinational OEMs, such as Hewlett-Packard and Ericsson." The long-term impact of Compaq's moves hinges on how quickly and exhaustively the company embraces an outsourcing model. Analysts estimate that annual revenue from Compaq to CEMs for production of desktop PCB assemblies alone could amount to $1 billion to $3 billion, and perhaps much more if the company moves to expand its outsourcing model further. "There are tremendous opportunities at Compaq," said James Savage, an analyst at B.T. Alex Brown Inc., New York. "Clearly, there will be substantial incremental revenue that flows through contract manufacturing." Compaq's outsourcing decision is part of the company's restructuring following the acquisition of Digital Equipment Corp. Compaq plans to lay off about 5,000 manufacturing workers, including 1,000 employees at its Houston PCB assembly plant. A spokesman for Houston-based Compaq said that over the next year, the company will phase in the use of CEMs to produce PCB assemblies for all desktop-computer products. Compaq plans to continue manufacturing PCB assemblies for its notebook computers and servers. "We hope to have most of these things implemented by the end of the year," the Compaq spokesman said. "We have [CEM] supplier relationships with a lot of companies out there, and we're going to look at the best suppliers to deliver the best product at, obviously, the lowest price." Although CEMs such as Jabil Circuit Inc., Flextronics International Ltd., EFTC Corp., and K*Tec Electronics are likely to compete for future Compaq contracts, SCI Systems Inc. is expected to be first in line to absorb additional work from Compaq, analysts said. "It's an encouraging sign of the continuing shift to outsourcing," said Olin King, chairman and chief executive of SCI, Huntsville, Ala. "It's a good sign for our industry, and fully consistent with what others have done and probably will do in the future." But King added: "I have nothing specifically to announce. Compaq is a significant customer, but they are not our largest customer." SCI, which is the world's largest CEM and leads the industry in PC-related manufacturing, already provides Compaq with a significant amount of PCB assembly and other services at its plant in Guadalajara, Mexico. In addition to its outsourcing plans, Compaq announced a number of plant shutdowns, including Digital's manufacturing headquarters in Marlboro, Mass.; its plants in Taiwan, Australia, Singapore, Scotland, and Brazil; and a Compaq facility in Shenzhen, China. Production from the closed plants is expected to be consolidated into Compaq's regional facilities, including its major plant in Singapore. The future of the shuttered plants was unclear last week. Several are in key regions where CEMs have sought to open operations. The benefits to CEMs could be significantly greater than predicted if Compaq begins to outsource even more work, including box-build levels of service.