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Technology Stocks : SCI Systems Inc. (SCI) -- Ignore unavailable to you. Want to Upgrade?

To: David Lawrence who wrote (699)	2/5/1999 11:40:00 PM
From: jbe	Read Replies (2) \| Respond to of 820

Motley Fool did a great job slamming SCI management today,in its Lunchtime News. Take a look, especially, at the right-on-target comments about investor discontent. Glad to know I have plenty of company! (That is, I am not paranoid, after all.) FOOL PLATE SPECIAL An Investment Opinion by Dale Wettlaufer SCI Cries Wolf? Electronics manufacturing services (EMS) provider SCI Systems (NYSE: SCI) has fallen from an all-time high of $58 1/2 early in 1999. Today at midday, it's down another $7 15/16 to $35 after the company told investors yesterday evening that it is revising its expectations for the coming two quarters. One of the largest electronics manufacturing services (EMS) companies, SCI expects that it will not meet earlier revenue and earnings projections for the March and June quarters, but it still expects to meet or exceed year-earlier results. In Q3 1998, the company's revenues were $1.69 billion and earnings were $0.50 per share. In the fourth quarter, revenues were $1.59 billion and EPS was $0.54. So we have a string of quarters for SCI where the top line looks like this: Revenue (in billions) Q298: $1.79 Q398: $1.69 Q498: $1.59 Q199: $1.57 Q299: $1.74 According to Zacks, the EPS numbers look like this: Q298: $0.55 Q398: $0.50 Q498: $0.54 Q199: $0.45 Q299: $0.50 This is in an industry where growth is more than 20% per year due to the natural growth in electronics output and the shift in assets from original equipment manufacturers (OEMs) to EMS companies. This is a pretty lackluster performance. Competitor Solectron (NYSE: SLR) recently posted a 71% increase in quarterly sales, to $1.9 billion, while Jabil Circuit (NYSE: JBL) showed a 40% increase in net revenues, to $447.9 million in its most recent quarter. Flextronics (Nasdaq: FLEX) grew revenues 69%, to $499.9 million. SCI says, however, that "...market conditions and pricing in several product areas appear to be degrading somewhat." What a surprise. When companies are dramatically underperforming their peers, one of the first refuges is to blame problems on the industry. SCI did say that "...customer market share shifts are occurring..." Big customer Apple (Nasdaq: AAPL) seems to have had an alright time of things lately. Perhaps there are a few too many iMacs in the channel, though. Hewlett Packard (NYSE: HWP) is also a major customer, but it's hard to trace back to SCI individual trends at H-P, since H-P is diversified. Nevertheless, Hewlett did say in its last conference call that orders were up 5% year-over-year and 15% sequentially. Perhaps SCI is losing some of H-P's business, and some of that may be going to Jabil. Overall, there are some individual investors that are pretty ticked off with SCI, since the company's stock showed a gap down and some pretty ugly movements right before this earnings release. To top it off, SCI released its typically uninformative quarterly press release and then told institutional investors and analysts on the conference call lots of other stuff that it didn't tell individuals. It put out a release last night that said essentially, "Yes, business is soft and we think it's these things," but that was about it. You can't even tell from the company's filings what its gross margin is. Why anyone would invest in a company where you can't figure out the individual income statement line items and capital management metrics is beyond me. What's funny is the company doesn't even let some buy-side analysts in on its calls. All around, if the EMS sector is down today, keep in mind SCI's comments, but don't give them too much weight. The company's credibility with investors is pretty thin, and it seems like this is a case of an underperformer blaming its problems on what otherwise looks like robust industry conditions. fool.com