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

To: 18acastra who wrote (2023)	4/21/1999 1:14:00 AM
From: Marc	Respond to of 2542

SANM: Fiscal 2Q In-Line--Telecom Outsourcing Looks Imminent Salomon Smith Barney Tuesday, April 20, 1999 ------------------------ Telecom outsourcing represents the next leg of growth for the EMS industry, in our view, and we think investors will focus on this enormous opportunity, which Sanmina should be able to capitalize on given its traditional focus on telecom and datacom customers. On the conference call last night, management suggested that several deals may be announced within the next 90 days. We caution that any number of hitches could delay the deal-making process, but the telecom opportunity that investors have been anticipating appears to be approaching. Management estimated potential revenue dollars available from telecom OEMs over the next two years to be in the $10 billion range. Other have used estimates of $50-$60 billion as the total opportunity over the long term. For Sanmina, if we look at acquisitions of OEM assets and other telco deals ranging from $250 million to a billion dollars over the next two years, we calculate anywhere from $0.05 to $0.60 accretion on the bottom line, depending on the margins of the programs. We believe that over time, programs that start at low margins should be able to not only expand their margins due to efficiencies, but also develop into full-systems relationships with key telecom equipment OEMs. We view telecom as the most promising area in technology today. ---- People need to understand (and they currently don't) that Sanmina is a very different business than JBL/FLEX etc. SANM is primarily a backplane player, and that industry is predominently outsourced, so they now rely primarily on customers organic growth (and backplanes go into a lot of high growth stuff) as opposed to the general trend to outsourcing and winning giant new programs. As indicitive of the difference, when is the last timme anyone heard about a SANM giant new customer win? Also, look at SANM margin %, much higher than anyone else as they are getting paid for higher value-added backplane fabrication. BTW, the backplane market is much smaller (maybe 1/1000) than the overall market available to contract mfgs. like JBL and FLEX. So it may be that the limits of the market size that SANM plays in is finally catching up to them (two dicey Q's out of last 4). SANM is a great company, but in my opinion will not be able to sustain 30%+ growth like the other guys for the next 5 years. FOr this reason (and valuation), have always owned JBL/FLEX as opposed to SANM. JMHO. MArc