Cover story
M&A Activity Surges To 95 Deals in 1999
MMI Scorecard: EMS Industry Mergers and Acquisitions in 1999
1999 EMS Industry Alliances and Equity Partnerships
Market Makers
Q&A With MSL's CEO, Kevin Melia
News
Flextronics Joins Enclosure Movement
Viasystems Also in Enclosure Deal
Boundless Acquires Boca Research Facility
NatSteel Electronics To Purchase NEC Plant
Mergers and acquisitions in the EMS industry continue to hit new highs, both in size and quantity. Last year, the number of M&A deals tracked by MMI came to 95. That's up 19% from 1998's adjusted figure of 80. To put this level of activity another way, deals were done last year at a rate of about eight a month. For a complete list of M&A transactions in 1999, see the MMI's annual Scorecard below.
For the EMS industry, the term M&A is somewhat of a misnomer. Although a number of deals took place in 1999 through the ostensible merging of one company's stock with another's, in most all cases one party survived the transaction. The other was subsumed. Presented as pooling-of-interests mergers for accounting purposes, these deals were in effect acquisitions where the currency, or most of it, was stock. Indeed, rising 1999 stock prices helped to fuel last year's M&A action. High stock prices allow the buyer to make a deal with less of an impact on dilution, while the seller is attracted to the potential value of owning the buyer's stock.
Once again, MMI has placed M&A transactions into six categories (see chart). The first, and perhaps most visible, consists of asset divestitures by OEMs, which represented 36% of all transactions in 1999. Assets bought by EMS providers took several forms: a complete plant with workers, assets and employees in a leased facility, assets and people transferred to a provider's facilities, or assets alone.
By the way, there are those in the EMS industry who would dispute the use of this category. They argue that asset purchases should be viewed as any other capacity addition required for a new program.
In 1999, MMI identified 34 divestitures, a 42% increase over the 1998 total of 24 such deals tracked. OEM divestitures grew at a faster rate last year than did the overall level of M&A activity, which went up 19% as noted before. This faster rate reflects a near universal view among OEMs that manufacturing assets are not the best place to put their resources.
MMI's second class of transactions is made up of acquisitions to extend service capability or control over the supply chain. Falling just below the divestitures total, this category produced 32 deals last year. Compared with 1998's total of 20 deals in this category, the increase for 1999 amounted to 60%, the highest growth for any category. The growth of service and supply chain extensions in part resulted from a spate of acquisitions on the electromechanical side of outsourcing. For 1999, MMI counted ten acquisitions related to enclosures or precision assembly. Compare that with two such transactions the year before.
A growing number of EMS providers have decided to add capability for building their own enclosures, a market in its own right. (See also News section Flextronics and Viasystems.) "The extension by contract manufacturers into the metal enclosure business is largely being driven by pressures from the OEMs, a customer-driven demand. OEMs would like fewer vendors who are responsible for more of the finished product manufacturing under one roof," says Richard Steere, a principal with Sperry, Mitchell & Co. (New York, NY). This investment-banking firm, which specializes in providing M&A advice to middle-market companies, recently represented TAG Manufacturing in its sale to SCI Systems.
"It is estimated that the enclosure market is a $15- to $20-billion market with 800 U.S. enclosure manufacturers. The average enclosure manufacturer is approximately $10 to $20 million in revenue. They will not be able to meet a global customer's demands in terms of scale or capabilities. Acquisitions will continue. As more and more EMS providers expand into metal, there will be more consolidators searching for deals," Steere comments.
In the third MMI category for industry M&A, one EMS provider acquires another EMS operation. Despite perception to the contrary, the level of this activity held constant in 1999 versus 1998. (See chart on p. 1.) However, an increase in acquisitions of mid-tier and larger players did occur in 1999. MMI counted eight such deals in 1999, compared with two or three in the prior year.
A provider can also acquire an EMS operation from an OEM. Based on the relatively small number of OEMs with such operations, this class generates only a few deals each year.
Because there was little change in the total number of EMS operations acquired last year, consolidation did not pick up steam in 1999. MMI identified 27 deals in which an EMS operation disappeared in a merger or acquisition. The number for 1998 was 28.
The final two categories encompass diversification and new players. In the former, a provider diversifies beyond the scope of the industry, still a relatively rare case. The latter category describes instances in which a new player emerges by taking ownership of an existing EMS operation. The num-ber of such deals declined in 1999, perhaps one indication that the indus-try is nearing maturity (chart, p. 1).
Note that 1998 figures were adjusted for transactions that either weren't released or weren't tracked in 1998. A total of 12 deals were added to the number of transactions MMI originally reported (Jan.'99, p. 3-8). Also, three transactions in 1999 and one in 1998 fit in two categories and were counted in both.
Though popular in the EMS industry, acquisitions aren't the only way to extend a provider's capabilities or reach. Some 13 industry alliances and equity partnerships were formed last year (table, p. 5). MMI defines an alliance as a mutually beneficial arrangement between two parties where no equity investments are made. The newsletter uses the term equity partnership to describe cases where one party takes a minority stake in another to cement a relationship between the two. This term can also apply to joint ventures.
While alliances and equity partnerships are at nowhere near the level of M&A activity, their numbers are growing. Take Sparton Corp., perhaps the most visible proponent of industry alliances. The Sparton Alliance Network now consists of seven companies covering regions in Canada, the U.S. and the U.K. and representing about $400 million in aggregate sales. NatSteel Electronics Ltd., on the other hand, used two equity partnerships and an alliance to obtain ODM capabilities last year.
If one were to combine M&A deals in 1999 with alliances and equity partnerships, the total would be 108. Like the tip of an iceberg, this number only hints at the breadth and depth of the EMS industry, which is fast becoming the virtual manufacturing arm of the OEM world.
CEOs of EMS companies pride themselves on knowing their OEM customers. But few have the firsthand experience of being on the customer side of the outsourcing equation. Not only does Kevin Melia, chairman and CEO of Manufacturers' Services Ltd., possess that experience, it gave him the idea to start MSL in 1994. While serving as an executive at Sun Microsystems in the early '90s, he saw the need for a full-service provider that could offer a global solution. That was a radical concept for its day, when PCB assembly defined a contract manufacturer and global solutions were beyond the reach of all but a few providers. Though it was a big idea, Melia wanted it to drive his new EMS company right out of the blocks. With the financial backing of Donaldson, Lufkin & Jenrette, Melia made his wish come true. By the end of 1995, MSL's first full year in business, the company had acquired two operations in Europe, one in the U.S. and two in Asia.
When it comes to climbing the ranks of the EMS industry, MSL may be in a class by itself. Starting from scratch in 1994, the company had leaped into the industry's top 10 by the end of 1996. Since then, the company has maintained its top-10 ranking and made a place for itself among the industry's largest players. Now the company is preparing to take the next step -- an initial public offering (see next article).
In December, before the IPO was announced, MMI sat down with Kevin Melia to ask for an update on MSL and a look at where it's headed. Here is the interview that resulted.
MMI: How does your business look for 1999? Did you grow as fast this year as you did in 1998?
Kevin Melia: This quarter [Q4 1999], our annualized going rate will be about over a billion dollars...We've added a number of new customers in '99, which is important for us where we are in the growth of the company. And the thing that gives me pleasure is that, as I look back since I started the company, the compound average growth rate is 51%.
So we've had a good year. Growing rapidly has been a key goal for us as well as building the foundation that we started in 1994.
MMI: Can you say anything about what you're forecasting for this year?
Kevin Melia: I can't really talk about financial numbers. Our goal is to stay on track with what we've done....What we set out to do in '94 is build and invest in infrastructure to enable us to be one of the major players in the industry.
When I started in '94, I wrote down four or five things that we had to make happen. We've pretty well done those four or five things to give us the foundation and the infrastructure to be one of the major players. And those were: One, you had to be in all of the markets. The whole notion of one-stop shopping for the premier OEMs meant you had to be in the major markets around the world. Two, you had to be a full-service supplier for the OEMs from early involvement all the way to after-market repair. Three, at that stage -- and I think it's even more important now -- IT investments were going to be key as a way to differentiate. Four, one needed access to capital in order to be able to grow. And the last one was the need to build a management team that could handle rapid growth and handle the challenges that go with being a global company.
MMI: It sounds like you consider MSL to be a top-tier company. One could argue that this designation belongs to the top five or six. What is your take?
Kevin Melia: There are a couple of ways to look at it. It was important that we get the company to the size where we were seen by the OEMs as a company that could do major RFQs or major divestitures. To me, that's a very important milestone, and today we compete with the rest of the top ten in those major RFQs, but also in major divestitures. It's critical to achieve the rapid growth to be able to play in that space.
The second thing is: When you look at where the industry stands, depending on what statistics you look at, there's still only about 15 to 18% of electronics industry production that is outsourced. So the challenge for all of us in the industry, rather than competing for the same pie, is to make the pie bigger.
It's very important for us to stay focused. Today, the challenge for us is what you bid on and what you don't bid on....There's lots of business out there.
MMI: Can you give us some sense of how much you entertain, versus how much you decline to pursue?
Kevin Melia: It's very hard to put numbers around that. We start by focusing our energies. There are certain areas we want to service, which excludes us from a number of areas. For example, we have purposefully not gone after PC business. So one could say we've turned away from it because at this stage it is not a segment that we've tried to win for a whole host of reasons.
MMI: Do these reasons include the variability and low margins of the PC business?
Kevin Melia: Yes, that's one reason. The other thing is we want to be very focused on building our offerings. For example, we're not in Mexico today. We're not in China. We're not in Eastern Europe. And those kinds of products are looking for those kinds of offerings. Therefore, we don't try to chase those kinds of offerings and put them into our plants. It doesn't make sense.
MMI: How do you differentiate MSL from the competition?
Kevin Melia: Here's the analogy I use. We all bring the same equipment to the game: buildings, equipment, people, skills. Some of us may be a little ahead of the others, but we all bring the same equipment to the game. So what we [MSL] have focused on is how we play the game. And how you play the game from our point of view -- since we're a services company -- is to focus on customer satisfaction.
I ask our customers and prospects all the time why they picked us. And what comes back is the attitude that we bring -- this whole area of customer satisfaction and service. We've put a lot of investment into that area since I started the company.
MMI: Did you set up a process like Solectron has, with their famous customer survey reports?
Kevin Melia: Here are a number of things we have done. One, we have driven an attitude toward customer service, which is very important to our culture.
Two, we have invested in a process where for the last three to four years we have done independent surveys a couple times a year covering the majority of our customers. Then we dissect that information for trends, listening to our customers, putting action plans in place, etc. We've built a database of information from listening to our customers and then action plans to work with our customers. That's a very important process.
Number three, I believe you get the behavior you encourage. We tie our compensation system to customer satisfaction, starting from me all the way down the organization.
We've invested a lot of money in IT, using IT as a vehicle to drive this whole customer satisfaction idea. I think one of the key things is the ability to network with each other inside the company and then to network with customers so you're being responsive, dealing with issues, etc.
Every week we get a standard report card for a number of areas, one of which is customer satisfaction. At 9:30 East Coast time every Thursday morning, we have a global review. There are probably 40 people on that call.
MMI: You said you're not pursuing the PC business because you don't have a Mexico facility, and you don't have an Eastern Europe facility. Can you talk about your plans for Mexico and Central/Eastern Europe?
Kevin Melia: I think it's safe to say over the next couple of years we have to be in those locations. The customers are demanding it from us.
MMI: Now you still don't have a manufacturing site in the Northeast. Of course, your headquarters is here [in New England]. What's your latest thinking about that? You have lots of design capability here now. You have been buying up design companies.
Kevin Melia: Naturally we'd like to be in the Northeast, but we have put some investments in place early in 1999 with the acquisition of Ronlin and ESP [May '99, p. 8; July, p. 3-4]. We have the largest PCB design group here in the Northeast. But you can only do so much. We've also done Salt Lake City [a 3Com operation -- Nov. '99, p. 9]....In the order of priorities of where you put your resources, I think probably it would make more sense for us to go first into the three locations we just talked about. The Northeast is not as pressing a need right now. Although if the opportunity came up, we would look at it....The Northeast is an important market.
In the Northeast, we'd be more likely to have an NPI center type offering by adding prototype capabilities to our design services. That would probably be our first step.
MMI: What about Asia? The company underwent a lot of expansion there a couple of years ago. What's the latest word on your Asian business?
Kevin Melia: We're in Singapore and Malaysia; we have a partnership on Batam Island.
The Malaysia footprint [45,000 ft2] is fairly full. So what we're looking at right now is where do you expand in Asia. We've won several significant programs in Asia over the last six months.
MMI: If IBM is still your largest customer, who are some of the others?
Kevin Melia: If you look at our customer list today, which is in the public domain, we have IBM; 3Com; Palm Computing, which is part of 3Com; HP; Iomega; Rockwell; Eric-sson. So over the last three years our customer portfolio has significantly changed in that we have won premier OEMs and emerging new companies that have what I call legs to grow globally. That is a major shift for us.
MMI: It looks like you're pursuing just about all the major OEM markets except PC. Can you give me a snapshot of MSL's market mix today?
Kevin Melia: Computer is 30%. Communications is 27%. Consumer, if you count the Palm business, is 20%. Industrial/medical is 5%. PC peripherals is 18%. Communications is our fastest growing segment by far, although the industrial segment is growing pretty fast.
MMI: Can you give any examples of supply-chain initiatives [at MSL]?
Kevin Melia: We have spent about $40 million since '94 on IT in the form of capital and skills. The first person I hired into the company was an IT person with the intent that we wanted to devise an IT plan that would enable us over time to gain a competitive advantage.
E-business is changing a lot of industries; it will also change our industry. So we have a number of pilots involved with web sites for customers. We're working with our customers to get quick access to information. For example, customers are giving us their sell-through data from their channel. We're taking that data and using it to drive our MPS [master production scheduling] system. And then we're using that to drive the information out to our suppliers. Within the kinds of functionality we're putting in on these web sites is a set of criteria where the customer doesn't cut a PO for us. We cut the PO ourselves when certain criteria are met. That's reducing cycle time.
From an e-business point of view, the other thing is to give customers visibility to the status of what's going on with their orders.
We're focused on the whole area of connecting with the customer, connecting with the supplier -- the e-business to e-business to e-business connection. That will draw out tremendous opportunity. I would like to get to the stage where we have virtual connections with our suppliers. What we have to do is move information instead of moving material because the day you buy a piece of material it starts to depreciate and you're at risk of obsolescence....Then how do we postpone liability for material as late as possible in the process?
Our push now is to connect with our suppliers. We want our suppliers close to us in a virtual sense. But we don't want them incurring costs by setting up bricks and mortar because that will eventually be cost to us. If we're smart working together, we can use information to achieve the same objective and remove the risk for them.
Customer satisfaction is the differentiator for how you play the game. IT is the tool that can significantly change the way the game is played.
MMI: What is your prediction for what the industry will eventually look like in terms of the types of companies that will be doing business?
Kevin Melia: All I can tell you is what we want to look like. We are in the services business. We don't want to compete with our customers, and we want to stay on that track....I think there will be a challenge for [all of] us in the industry, as we put together more and more of a supply chain, to step across that line.
MMI: To start doing OEM work?
Kevin Melia: Right. It's very tempting. Having been a customer [of the industry], I have a concern. Will the OEMs see that as the EMS industry consolidating what they dismantled in the '80s? One of the beauties of the current system is the competitiveness and the flexibility that's out there. If I were inside an OEM today, I would be concerned if there were too much concentration and too much vertical integration because I would have lost the competitive portfolio that I can look at. And I would be concerned about the flexibility of my provider. I don't know the answer, but it's an interesting question for all of us in the industry.
Manufacturers' Services Ltd. has filed for an initial public offering with an aggregate price of $150 million. The company expects the offering to be completed in Q2. MSL has applied for listing on the New York Stock Exchange under the symbol EMS.
Of the proceeds, about $57.0 million will be used to retire all of the outstanding preferred stock issued in connection with MSL's acquisition of 3Com operations in Salt Lake City, UT. MSL will also use the proceeds to repay a portion of indebtedness from its bank credit facility, and for general corporate purposes. As of December 31, 1999, total debt was $127.3 million, and interest expense for the year was $8.1 million.
For 1999, MSL reported sales of $920.7 million, up 10% from 1998's total of $838.0 million. The provider earned net income of $2.0 million in 1999, of which $1.2 million was applicable to common stock. In 1998, MSL posted a net loss of $6.2 million, which included an extraordinary loss of $2.2 million.
IBM continues to rank as MSL's largest customer, accounting for 49% of sales in 1999. The two previous years IBM represented 51% of sales. MSL's second largest customer is Iomega, with 14% of 1999 sales, compared with 20% for 1998. The provider's ten largest customers amounted to 84% of sales last year.
Prior to the offering, approximately 90% of MSL's common stock is held by investment entities affiliated with Donaldson, Lufkin & Jenrette.
The offering will be led by DLJ with Banc of America Securities, Robertson Stephens, Thomas Weisel Partners and DLJdirect acting as co-managers.
SCI Systems (Huntsville, AL) has purchased an equity interest in Uniwill, a Taiwanese maker of notebook computers. Also, SCI and Uniwill have entered into a joint manufacturing and distribution agreement for notebook computers and Internet appliances. SCI says this partnership is intended to enhance its supply-chain management skills and offerings.
This move can be viewed as a way to add ODM (original design manufacturer) capabilities. NatSteel Electronics Ltd. and Solectron have also formed ODM relationships recently (Dec.'99, p. 5 and Oct., p. 6).
Under this agreement, SCI will serve as exclusive manufacturer for certain of Uniwill's products and will act as an additional channel for distribution of these products by leveraging SCI's configure-to-order capabilities.
"Uniwill has excellent technology and design resources for not only notebook computers, but also a broad range of other compact computing devices and digital appliances," states Gene Sapp, SCI's president and CEO. He says the relationship complements SCI's extensive design expertise.
Established in December 1998, Uniwill was formerly a unit of Lite-On Technology Corp.
Flextronics International (San Jose, CA) has become the latest EMS provider to acquire a company in the enclosure business. The provider joins the likes of C-MAC Industries, SCI, Sanmina and SMTC Manufacturing that have made earlier acquisitions on the electromechanical side of outsourcing (see p. 1 article and Scorecard). Flextronics has inked a definitive agreement to acquire Palo Alto Products International Pte. Ltd., a Singapore-based product development company that provides industrial design, mechanical engineering and manufacturing services.
Palo Alto Products has designed housings for products including PDAs, laptops, desktops, display devices, communications equipment and consumer electronics. Besides industrial design and mechanical engineering, product development services include injection molding, sheet metal stamping, assembly and logistics. The company has three production sites: a manufacturing facility in Thailand, an injection mold and die building operation in Taiwan, and a manufacturing and plastic injection molding facility in Texas.
"This acquisition will significantly strengthen Flextronics' engineering and technology services by adding mechanical and industrial design to our scope of integrated services," states Michael Marks, chairman and CEO of Flextronics. "Palo Alto Products has a unique integration of design services and manufacturing capabilities that complement Flextronics' core competencies." He says the acquisition will allow Flextronics to develop products more quickly.
Product development services will become part of a newly created design division at Flextronics. Palo Alto Products will be renamed Flextronics Design.
Palo Alto Products employs about 1000 people, and manufacturing space totals 600,000 ft2. The company's lead design center is in Palo Alto, CA. It also sells a line of computer enclosures for the PC OEM market.
The deal is expected to close on April 4.
Viasystems Group (St. Louis, MO), originally formed as a PCB fabricator, has now moved into the EMS industry with both feet. The company intends to buy Marconi's Network Components & Services (NC&S) business, an enclosure manufacturer for the telecom market. The price is $115 million in cash, and closing is expected before Mar. 31. NC&S operates facilities in the U.K., Italy and China as well as joint-venture facilities in Denmark and the U.S. Besides enclosures, NC&S makes racks, sub-racks, heat management systems, cable assemblies and custom power supplies.
Viasystems now describes itself as an independent provider of EMS. For the 12 months ended Sept. 30, 1999, about 35% of company revenues came from value-added services such as backplane assemblies, PCB assemblies and wire harnesses and cable assemblies.
In connection with Viasystems' recently filed IPO, the company also plans to acquire the wire harness business of International Wire Group, which is controlled by affiliates of Hicks, Muse, Tate & Furst, the same investment firm that backed Viasystems. The price is $210 million in cash. The company will also spin out nine European PCB manufacturing facilities into a new company.
Through a subsidiary, Boundless Corp. (Hauppauge, NY), primarily known as a terminal manufacturer, has entered into a definitive agreement to buy assets related to Boca Research's manufacturing operations in Boca Raton, FL. As a result, another Boundless subsidiary, Boundless Manufacturing Services (BMS), will gain its first EMS customer. BMS, which was launched last year (Oct.'99, p. 5), has obtained a multiyear manufacturing agreement to supply Boca Research with PCB assemblies from the 70,000-ft2 Boca Raton facility, which contains four SMT lines. This activity will include the supply of Boca Research's modem products and new products as they are released. BMS will also provide distribution and logistical services. The contract specifies a minimum level of manufacturing services for the first 12 months.
Boundless is making this deal for several reasons. For one thing, it will give BMS a PCBA capability that it doesn't have within the company's build-to-order facility in Hauppauge, NY. Secondly, "it expands our footprint. We want to have a plant in the Southeast," explains Joseph Joy, president of BMS. "Three, there is a very, very capable team of associates in place down there."
Boca Research cited its underutilized plant and a change in strategy as primary factors in the decision to outsource. The company is de-emphasizing its position as a data communications manufacturer in favor of software and systems solutions.
The agreement between the two companies stemmed from a meeting held by the two to discuss product lines and technology. Initially, the agenda had nothing to do with outsourcing. It was only when the two companies described their respective positions on manufacturing that Boundless emerged as a company that could take over the manufacturing that Boca Research would no longer support.
Subject to due diligence and other customary conditions, closing is expected in early March. BMS anticipates that substantially all of the operations team, or about 70 people, will come over from Boca Research.
BMS intends to move into other geographies as well. "Obviously, we would like to expand into the West or Southwest. That's a fairly high priority. We would like to serve the Midwest with a local capability," says Joy. "I don't think we're complete in the Northeast yet. As saturated as Boston is, I still think it's important to be there for closeness to engineering teams -- the OEMs. BMS is also on the lookout for opportunities to expand into low-cost regions. What's more, the EMS unit just started exploring Europe, with Wales, Scotland or Ireland as possibilities. "We expect to acquire four more sites within 18 months to two years," says Joy. "We expect to fill out our footprint before that."
Two more OEM divestitures... Varian Inc. (Palo Alto, CA) has purchased a manufacturing operation in Poway, CA, from Inter-Tel (Phoenix, AZ), a telecom company. As part of the agreement with Inter-Tel, Varian is taking over manufacturing of computer telephony products in the Poway facility, formerly part of Executone Information Systems before its computer telephony business was acquired by Inter-Tel in January. Varian bought inventory and fixed assets at book value of $6.6 million and assumed the lease for the 112,000-ft2 facility, of which Varian will initially occupy half. Inter-Tel has been a Varian customer since 1991. This move gives Varian more capacity and a second location for contract manufacturing. The company's original EMS plant is located in Tempe, AZ....Late last quarter, Plexus (Neenah, WI) purchased SMT board assembly assets in Everett, WA, from Intermec Technologies, a longstanding Plexus customer. Plexus will soon move this equipment and associated personnel to its Bothell, WA facility. This deal will give the facility board-level capability.
More deals done...Last month, Flextronics closed its acquisition of the Fujitsu-Siemens operation in Paderborn, Germany (Dec.'99, p. 3). At 400,000 ft2, the operation has an annual run rate of about $300 million. Flextronics paid about $70 million....Airport Systems International (Overland Park, KS) has completed its previously announced acquisition of DCI (Lenexa, KS), whose business includes contract manufacturing (Jan., p. 11). Also, Airport Systems closed on an investment from Kansas City Equity Partners to fund its new strategy of diversifying into electronic systems and contract assembly services.
Another Sparton alliance...Sparton (Jackson, MI) has added a sixth alliance partner, Cirtronics, which operates as an electronic and electromechanical CM in Milford, NH. Cirtronics will provide Sparton with local coverage in the Northeast, while Cirtronics will gain access to larger volume opportunities through the resources of Sparton. (See article on p. 1 and alliances table on p. 5).
Brazil, which exacts stiff penalties for imported electronics, continues to attract large providers. The latest entrant is Jabil Circuit (St. Petersburg, FL), which has acquired a Bull Information Technology operation with 60,000 ft2 of leased facilities in the City of Contagem in Brazil's Belo Horizonte region. Employing 200, the Brazilian operation serves EMS customers as well as Bull.
Jabil is acquiring about 30 acres in Contagem and will be constructing a new facility to replace the leased facilities.
"The acquisition of the Bull Information Technology business and manufacturing assets will greatly accelerate our greenfield plans with existing business and employees," states Ron Rapp, Jabil's senior VP of operational development.
This divestiture raises the question of whether Groupe Bull, the French parent company, will divest any other manufacturing assets. In late 1998, Bull announced it was looking for a partner to buy at least partial ownership in Bull's EMS subsidiary, Bull Electronics, which operates facilities in Lowell, MA, and Angers, France.
Meanwhile, Jabil has confirmed that its new Hungarian plant will be located in Tiszaujvaros, as reported here last month (p. 11). The provider has acquired about 30 acres in a new industrial park development there for an initial facility of about 250,000 ft2. Production is scheduled to begin in September. Located in northeastern Hungary, Tiszaujvaros was selected after Jabil considered cost, logistics and the quality and availability of workers in the area.
NEC America, a subsidiary of Japan's NEC Corp., has agreed to sell its 380,000-ft2 plant in Hillsboro, OR, to NatSteel Electronics Ltd. (NEL) of Singapore. NEL will acquire the assets of the NEC facility and will enter into a three-year supply contract to manufacture NEC communications equipment and automotive electronics. Asset value of this purchase comes to about $200 million, and NEC will pay that amount as the total consideration for this deal.
The sale of the Oregon plant is part of a restructuring strategy announced by NEC in October 1999, when the plant went on the block (Oct.'99, p. 8).
"To NEL, this partnership with NEC represents the start of NEL's expansion and thrust in the U.S. It will also provide NEL with the strong foundation to expand into both the U.S. and Japanese markets," states Chester Lin, NEL's CEO.
Equipped with nine SMT lines, the Oregon plant manufactures products mainly at the box-build level. Products include access network systems, integrated communication systems, and synchronous optical networks, in addition to electronics systems for cars. About 700 people work there. NEL will gain a Product Engineering team, which provides a range of support for design and test development for box-level assemblies.
The new site will serve as NEL's operational headquarters in the U.S.
Selling EMS assets...EFTC (Denver, CO) has agreed to sell a portion of its Tuscon, AZ, card assembly operation to Honeywell International. Honeywell will acquire Tuscon facility assets currently used in manufacturing for the Honeywell Electronic Controls product line. Associated employees will be offered jobs with Honeywell. EFTC believes this transaction will improve its balance sheet and profitability. The Honeywell product line amounts to about $20 million of EFTC's 1999 revenue. EFTC will retain other Tuscon customers and transfer their production to EFTC's operations in Phoenix, AZ. EFTC says this sales does not affect contracts with other Honeywell business units. This is the second facility from which EFTC has withdrawn in recent months (Oct.'99, p. 10). In January, the company had delayed release of its Q4 1999 results "due to ongoing business discussions which may affect year end numbers." EFTC expects to report results this month....Pen Interconnect (Irvine, CA) is negotiating with potential buyers for its InCirT Division, a contract manufacturing business. The division posted an operating loss of $119,000 for Pen's fiscal Q1 ended Dec. 31, 1999. Pen sold its PowerStream Division in January.
K*TEC Electronics (Sugar Land, TX), Kent Electronics' contract manufacturing division, has landed its largest contract ever, expected to add about $600 million in revenue over three years. The unidentified customer is in the semiconductor capital equipment business, which means wafer fab tools. K*TEC will use its vertically integrated capabilities for the large-scale box builds required by this program.
"I think this contract makes K*TEC a presence in the CEM industry and takes it to the next level," comments Mike Gibbons, executive VP and GM of K*TEC.
The division estimates that the contract will add about $100 to $110 million to its fiscal 2001 ending March 2001. K*TEC expects to close fiscal 2000 with sales of about $250 to $260 million.
Under the agreement, Kent will issue to the customer five-year warrants for 300,000 shares of Kent stock at the current market price. The warrants will vest over the contract period based on attaining certain revenue targets.
More new programs...The Winona, MN, operation of Benchmark Electronics (Angleton, TX) will supply hardware assembly for a clinic system to be launched by a new e-business that Medtronic (Minneapolis, MN) has formed....Solectron (Milpitas, CA) will manufacture a line of universal docking stations for Mobility Electronics (Scottsdale, AZ). Production will take place in Johor, Malaysia....Electronic Manufacturing Services (Mayaguez, Puerto Rico) has received a three-year contract to produce and assemble mobile computer product lines for Intelliworxx (Sarasota, FL). Already in production are single-board computers for the automotive market, a ruggedized tablet computer, and an embedded computing module.
New facilities...Pemstar (Rochester, MN) has opened and is now shipping in volume from a new 40,000-ft2 facility in Tianjin, China. The provider invested $10 million in the greenfield site, located 60 miles southeast of Beijing. "That's a big chunk of change, particularly in Northern China," says Steve Petracca, Pemstar's executive VP of worldwide sales and marketing. He adds, "Motorola is the anchor customer, and we're now looking for customers in Silicon Valley. We'll take several more high-volume customers in there [China] over the next 12 months." Expandable to 250,000 ft2, the new plant already employs 500 workers. Pemstar plans to replicate this type of operation in Brazil and Ireland and to locate a satellite facility in Hungary. "We want all these facilities in place by the end of the year," says Petracca. What's more, Pemstar is adding SMT equipment and box-build capability to its operation in Thailand....The Guadalajara, Mexico, operation of Benchmark Electronics has moved to a new building of about 160,000 ft2....Pensar Corp. (Appleton, WI) has opened a new Minneapolis Design Center in Plymouth, MN. The new site includes a Customer Support Center, which was recently relocated and expanded. Pensar expects its product design, development and technical support staff to exceed 65 people by year end.
In case you missed it...IPC, the trade association in Northbrook, IL, estimated that the EMS market in the U.S. increased 21.5% last year to $27.4 billion.
