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

To: Larry Unger who wrote (1791)	10/2/1998 12:02:00 PM
From: Creditman	Respond to of 2542

I think JBL but I'll try to check it out for you. By the way, JBL reports on Tuesday and I expect a big upside surprise. Even in these dark, dark market days JBL's stock is hanging in there.

To: Larry Unger who wrote (1791)	10/2/1998 12:06:00 PM
From: kolo55	Read Replies (1) \| Respond to of 2542

Cisco as a 10% customer. Based on trailing revenues, Cisco is over a 20% customer for Jabil. But based on new HP + Dell + Bay Networks business, this percentage should drop significantly. In fact in less than 12 months, unless Cisco sends a lot of new work to Jabil, Cisco will be less than a 10% customer. I believe Cisco was close to a 10% customer for Solectron, but again based on new NCR + IBM + other new biz, this won't be true anymore. Sanmina also gets a lot of business from Cisco, and could be over a 10% customer. I don't think any of the other ECM companies have over 10% of their business with Cisco. May I ask why you ask? A lot of traders seem to be trying to trade this sector by looking for good/bad news among major customers, and then buying/selling a major ECM stock based on news released by customers. This game may have been useful the last year, but I think this trading strategy is coming to the end of its useful life. With the number of blocks of new business that the major ECM companies are picking up, their portfolio of customers are expanding rapidly. Except for a few limited cases, trends in most customer base businesses won't impact revenues and earnings enough to matter. Take Jabil as an example. Earlier this year when Quantum was over 20% of revenues, and announced a slowdown in their DLT business, it hit Jabil (for one quarter or so). It probably trimmed about 5-8% off Jabil's revenues in the JunQ, and this was significant compared to the expected 5-8% sequential growth in revenues expected. By next summer, Quantum should be less than 10% of Jabil's revenues, and the corresponding decline in almost a worst case scenario is only 2-4% of Jabil's revenues. Compare this with the almost 100% growth in Jabil's annual revenue run rate expected by then, and you can see the impact is relatively minor. Also in the cases where a major customer is more than 20%, the business is usually relatively steady, since it was often due to an outsourced plant acquisition. For example, in Jabil's case, HP will be over a 20% customer over the next 12 months (and probably a 30% customer in the DecQ). But Jabil has just bought the HP laserjet printer plants, and unless this business not only stops growing, but drops dramatically, there simply won't be a large negative impact on Jabil. Likewise Ericsson is over a 20% customer for Flextronics due to a plant acquisition, but the Ericsson business is relatively steady and expected to remain so. In summary, the major ECM companies won't likely see big revenue and earnings swings based on impending good/bad news in their customer's business. Winning or losing major contracts has much more impact on ECM company revenues. And the trend is that a lot of major outsourcing contracts are being let at this time. Paul