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

To: BenYeung who wrote (1632)	7/30/1998 7:00:00 PM
From: Asymmetric	Read Replies (2) \| Respond to of 2542

Solectron to Take Over Manufacturing Of Some Mitsubishi Electric Products By G. PASCAL ZACHARY July 30, 1998 Staff Reporter of THE WALL STREET JOURNAL In a fresh sign of American economic competitiveness, a leading U.S. contract manufacturer has struck what appears to be the first deal ever with a Japanese company to take over part of the latter's manufacturing operations. Solectron Corp., Milpitas, Calif., said Wednesday that it signed a letter of intent to take over manufacturing of cellular-phone products for Mitsubishi Electric Corp. of Japan. The company said the five-year deal, involving the purchase of production lines at a Mitsubishi factory in Georgia, could add as much as $150 million in annual revenue. "Why, isn't this a sign of changing times," said Clyde Prestowitz, president of the Economic Strategy Institute in Washington and a longtime Japan watcher. "How interesting that the Japanese, who we always thought of as the icon of manufacturing efficiency, are asking an American company to help them." Industry analysts say this could be the first of a wave of such deals and that it reflects a deep and probably lasting shift in international business. "This is a further illustration of the extent to which American manufacturers have regained the number one position in the world," said Jerry Jasinowski, president of the National Association of Manufacturers. Mr. Jasinowski added that, ironically, "the great role models" for the U.S. have been Japanese manufacturers such as Toyota Motor Corp. In recent years, American companies have increasingly found profit in hiring manufacturing specialists to provide soup-to-nuts services. Solectron, for instance, has taken over some of the manufacturing plants of International Business Machines Corp. and NCR Corp. this year alone. More recently, European companies also have begun to hand off some factories to U.S. specialists. The Japanese have been holdouts in this process, but the costs of keeping things in house may prove too great for some companies. "The Japanese have to make hard choices about capacity utilization and employment," said Adam Posen, a research fellow at the Institute of International Economics in Washington, D.C. "For economic reasons it's a lot easier for them to rely on Americans." In the past, Japanese outsourcing has been limited to Asia, but with the region's economy contracting "the U.S. may get to pick up some things that would otherwise have gone to Asia," Mr. Posen said. Analysts praised the Solectron deal, saying it opened a new area for growth and at a relatively low cost. "On these asset purchases the [contract manufacturers] are buying the assets at book value and they are getting a volume commitment," said Shelby Fleck, an analyst with Morgan Stanley. "This isn't a huge outlay for Solectron," said Ms. Fleck who estimated that the company probably will pay as little as $20 million for seven Mitsubishi manufacturing lines and inventory. Solectron declined to specify financial terms of the deal, which should close by the end of the year. Solectron is also picking up about 350 Mitsubishi employees. It struck its first such deal with IBM in 1992. Despite the favorable reaction from analysts, shares in the company's stock fell $1.6875 to $46.9375 Wednesday in New York Stock Exchange composite trading, in a market that generally drifted downward.