Cover story
Outlook '99: More Business As Usual
1998 Transactions
MMI Scorecard of EMS Industry Transactions in 1998
Market Trend
News
Solectron To Buy IBM's Austin ECAT Operation
SCI in Agreements With VeriFone and SGI
Flextronics Intends To Buy ABB Operation
Outsourcing, the engine that drives the EMS industry, just won't quit. Aftershocks from the financial blow-up in Asia did rock the EMS train, but it stayed on track in spite of Wall Street doubters. Now the train appears to picking up steam as more OEMs hop aboard. Below are some signposts that should help to provide directions for the EMS industry's trip through 1999.
1. The EMS business is as close to bulletproof as an industry can get. As long as the total available market (TAM) for EMS services remains underpenetrated, the EMS market will enjoy built-in growth from outsourcing regardless of what is happening to the electronics industry at large. With estimates of TAM penetration below 20%, outsourcing growth is not likely to end any time soon.
It will take more than the Asian financial crisis to derail the industry in 1999. Sure, the Asian crisis did create some softening in demand that affected certain providers, but growth in the public sector for the first nine months of 1998 remained rock-solid at 29% (Nov.'98, p. 10). What's more, this result for public side actually beat typical long-range forecasts of 25% growth.
One can even make the case that if business conditions worsen, OEMs will seek to cut costs by accelerating their outsourcing plans. After all, it was the recession of the early 1990s that put outsourcing on the map.
2. Build-to-order and configure-to-order requirements are spreading from the PC industry into other segments. Our 1998 Outlook identified BTO as an emerging trend in box-build work. Now MMI sees BTO and CTO moving into networking and other product areas besides PCs. That means more EMS providers will be exposed to BTO and CTO, which, among other things, require a provider to test the finished product. Finished product testing is highly customized and requires working knowledge of the product's design. This can be a problem for providers without the necessary engineering expertise. In some cases, an OEM has avoided the problem by developing the final testing and then passing it on to its providers. But what happens when the OEM wants to outsource test development as well? This requirement could "separate the men from the boys" when it comes to BTO and CTO programs.
The spread of BTO and CTO requirements will also mean more demand pull manufacturing and more order fulfillment performed by EMS providers.
3. Supply chain optimization is a megatrend that will drive the EMS industry for years to come. BTO and CTO are facets of supply chain management, which is all about delivering products fast with little or no inventory exposure. While this goal appears to be simple, optimizing the supply chain is not. That's why this trend will be with us for a while. EMS companies will attack the supply chain on several fronts including:
The Internet. This year will see material quotes, contract proposals, and component purchases increasingly done over the Internet.
Software. Newly developed software will address electronic quoting and purchasing. Companies with new software in this area include Digital Market (see News on p. 12) and Polydyne Development. Other software will be attractive for managing component data or product information such as engineering changes. Still other packages will offer the ability to do "what-ifs" across the supply chain. To manage complex streams of information in the supply chain, more providers will need multiple software tools that go well beyond an MRP or ERP system.
Reengineering the supply chain. EMS providers will take a closer look at ways to operate the supply chain more efficiently. One approach is to focus upstream for better ways to work with suppliers. Examples include reduction of the supply base, vendor-managed inventory, colocation of suppliers, and vertical integration, each with its pros and cons.
Another approach is to look downstream as Solectron did with its Ingram Micro alliance. Although time will tell how well this partnership performs, it does provide a seamless link between manufacturing and the distribution channel. NatSteel Electronics made a similar move by acquiring three IT distributors in Asia. At present, it is unclear whether other EMS companies will adopt such a strategy. Even if some do, they must still find channel assemblers willing to share the work.
4. The gulf between the largest providers and everyone else is widening, and those that are not in the top tier will need well-conceived strategies. For the top tier, 1999 could be a big year. If so, players on the industry's lower rungs will find it even more difficult to catch up given the high growth rates they would need to sustain. Many will realize, if they haven't already done so, that the top tier is out of reach. In general, they will not find growth coming from the large OEMs that favor the top tier. These providers will need to find other formulas for growth. Given this imperative, MMI expects that many players below the top tier will reexamine their options, including some that are nontraditional for this industry:
Mergers of competitors. A few years ago, this scenario would be inconceivable in the dog-eat-dog world of contract manufacturing. But a former enemy can turn into a friend if the net result is growth for both parties. Although this approach goes against the competitive nature of contract manufacturers, there is some precedent for it in the merger of Altron and Sanmina.
For some public EMS companies, if a deal is made, it will likely be a friendly one. Benchmark Electronics, IEC Electronics and XeTel have all enacted antitakeover provisions.
Alliances. Although alliances are not widespread in the EMS industry, their use is increasing. For example, Sparton is extending its geographic range through alliances rather than acquisitions. Alliances can also give a company access to new customers and capabilities. A case in point is the 1997 partnership of EMS provider Plexus with Cadence Design Systems, a supplier of design automation software and design services. Under this agreement, both companies are jointly marketing product development and manufacturing services to their respective customers.
Niche strategies. This is a standard approach for small and mid-range players. A niche can be carved out based on geography, program size, product mix and volume, product life cycle, services, response time, market specialization or any combination thereof. Niche strategies tend to favor smaller players rather than larger ones and may be growth limiting. With the rise of the top tier, choosing the right niche strategy will become all the more important.
5. Industry consolidation is becoming noticeable. MMI counted 26 operations in EMS that were acquired in 1998. If present rates hold up, there will be 32 or more this year (see next article). Add in a few business failures, and consolidation could amount to around three players a month. Although this loss does not yet cause significant shrinkage in the industry, it is noticeable. In previous years, there was lots of talk about consolidation, but little evidence of it. The evidence is now starting to come in, and the those who have kept their heads in the sand should take heed.
MMI believes that consolidation is currently limited by the number of willing sellers. But a psychological factor could come into play. When companies see a competitor selling out, they can't help but wonder if they should be doing the same thing.
6. The stage is set for more OEM divestitures, and top-tier players would be first in line to claim the benefits. This is not guarantee for 1999, but indications are that divestitures will continue.
- When it comes to outsourcing, the traditional telecom industry is underpenetrated.
- Northern Telecom will engage in divestitures as part of a three-year plan to restructure operations. Reportedly, 24 plants are involved in this plan (see News, p. 10).
- OEMs that have engaged in discussions with one or more top-tier players include Alcatel, Motorola and Siemens.
- More European OEMs are moving into divestitures. ABB is a good example (see News. p. 11).
- According to SG Cowen Securities analyst Amy Lubas, "All the top-tier ECMs have described there are more OEM asset divestiture opportunities today than they've ever seen."
- Divestitures appeal to large OEMs in particular because they can outsource while preserving jobs for their employees at the EMS provider.
7. After global providers finish setting up in Central Europe, they pretty much have the world covered. With a Central Europe capability, a number of global players can offer low-cost manufacturing in the three major markets. Where else do they need to go? If there is an answer, it eludes MMI. Brazil has already attracted five global providers (Nov.'98). Given the unsettled state of that economy, one cannot imagine lots of competitors joining them any time soon. So the multinational migration from one region to the next may be winding down, at least for now.
Still, the low-cost regions are preferred for stable, price-sensitive products. So these areas -- especially China, Mexico and Central Europe -- will continue to see a build-up in both infrastructure and capacity.
8?? Y2K is a wild card with destructive potential. MMI does not pretend to know how Y2K will affect the EMS industry. But this two-digit problem with computer calendars is not to be taken lightly. For example, Solectron estimates a cost of between $28 and $42 million to fix the problem within its operations.
One thing is for sure: EMS industry suppliers that fail to comply with Y2K face the likelihood of being dropped like a hot potato.
EMS mergers and acquisitions tracked by MMI showed straight-line growth for 1998. The year ended with a total of 68 deals completed, surpassing 1997's adjusted total of 50 by 36%. (See first chart.) In both 1998 and 1997, the number of EMS deals done increased by the same amount -- 18 transactions.
For a list of EMS transactions recorded in 1998, refer to the MMI Scorecard that follows.
Not only are there more deals, but more companies are making them. Acquisitions are by no means reserved for the EMS industry top tier. Indeed, the number of acquiring companies quadrupled from 10 in 1994 to 40 in 1998 (see table). This expansion in the number of deal makers provided a major source of growth for mergers and acquisitions over the last five years. M&A growth was compounded by another factor: the trend to make multiple transactions. The number of deals closed per company went from 1.1 in 1994 to 1.7 in 1998.
A few companies were well above that average last year. By far, the most active deal maker in 1998 was Celestica with eight transactions. Last year, 16 companies made more than one deal.
Two types of transactions were most popular in 1998: acquisitions of contract manufacturing operations and OEM divestitures. Of course, this result should come as no surprise since these categories continue to represent two primary options for growth by acquisition in the EMS business. (See chart below.) Nearly equal in number, these two categories accounted for 63% of all transactions in 1998.
MMI counted 21 OEM divestitures for 1998, up 62% from last year. This increase reflects the overall growth in the outsourcing megatrend since divestitures combine outsourcing with a transfer of manufacturing assets. Divesting OEMs in 1998 consisted of some that had sold assets before and others that were doing it for the first time. OEMs such as AlliedSignal, Apple, Ericsson, Hewlett-Packard, and IBM had divested in the past. Among the new names on the Scorecard's list of divestitures were ABB, Intergraph, Madge Networks, Mitsubishi, Nokia and Silicon Graphics.
What's more, Europe played a prominent role in these divestitures. Nearly half, or ten, involved a European operation. Of those, eight were solely based in Europe. So at long last, European OEMs are starting to overcome the social barriers that have held European outsourcing in check.
Also as frequent were deals where one EMS provider acquired another. There is nothing new here except that this activity grew by 69% last year, indicating that more contract manufacturers were willing to sell out or merge in 1998 than in previous years. These CMs obviously felt they were better off as part of a larger operation, which can offer more facilities and financial resources. This willingness to give up autonomy provides a necessary condition for the onset of industry consolidation.
Consolidation also encompassed quick-turn and prototype houses that were bought to extend the service offerings of the acquiring company. These transactions were classified as service extensions, which also included acquisitions of design operations. With two exceptions, service extension deals in 1998 were made to enhance a provider's front-end offerings.
In the past, MMI has used three additional categories for classifying deals (Feb. '98, p. 3). The new player category refers to cases where a new EMS provider emerges from a management buyout, acquisition by an investment group or outside firm or merger with an outside company. The last two categories -- OEM sale of an EMS business and diversification -- were of minor importance in 1998.
As shown in the first chart above, EMS consolidation has increased steadily since about 1995. For 1998, MMI counted 26 EMS and related operations that were absorbed by acquisitions. Compared with 1997, the loss of independent operations increased by 30%.
Still, consolidation has yet to make a big dent in the EMS industry. Of 175 deals tracked by MMI from 1994 to 1998, 78, or 45%, resulted in the assimilation of industry players (pie chart below). But when compared against a worldwide industry on the order of 2000 companies, the portion consolidated in those deals over the last five years amounts to about 4% of the industry.
Note that MMI has excluded electromechanical providers from its M&A listings. The electromechanical side of the outsourcing market has recently emerged as a separate segment undergoing consolidation through a different set of players. Also, a few 1997 transactions were left off the 1997 Scorecard for various reasons. Scorecard data from 1996 and 1997 were revised accordingly.
The EMS industry is losing players to consolidation, but this trend has not kept new companies from entering the industry in 1998. MMI has identified five start-ups, of which three are appearing for the first time in these pages (see table). Why do these start-ups believe that they can succeed when smaller CMs are increasingly selling out to larger ones? Each new company has its own response. But each, in its own way, is betting its future on a niche strategy.
Case Assembly Solutions. Located in Easton, MA, Case opened in August 1998 as a full-service contract manufacturer. This start-up sees its location, half way between Route 128 and Cape Cod, as an advantage for attracting business from the growing community of small OEMs that have settled on the Cape. "The niche we're serving is smaller electronics companies, especially down on the Cape. There are quite a few down there," says Greg Cronin, president of Case Assembly. "The quantities they're looking at are nothing that these larger guys coming in even want to look at."
The company was founded by Cronin and Jay Sullivan, both of whom came from DC Scientific, another CM in Massachusetts. Cronin had managed DC's engineering group, while Sullivan had been production supervisor.
While Case started out doing a lot of hand build SMT, the CM also offers an automated SMT line featuring a Universal 4785 chipshooter and a Philips 84VZ placement machine. Besides board assembly, services include cable and harness assembly, conformal coating, potting, rework, ECOs, and box build. Case contrasts the antistatic floor, drop ceiling and temperature controlled environment of its facility with the warehouse-like interior of other plants.
Icron Systems. This Canadian start-up is going public in the first year of operation, which is unheard of in the EMS industry. Cardigan Capital Corp. has received conditional approval from the Alberta Stock Exchange to acquire Vancouver-based Icron. Cardigan, a shell company, was set up to take Icron public through a reverse takeover. Approval of the deal is subject to completion of at least $500,000 Cdn in financing, and Car-digan expects to raise $1 million Cdn.
One way Icron differentiates itself is through its staff of four engineers out of about 28 employees. This engineering group can offer services such as product engineering, cost engineering, test design and DFM. Not only that, Icron has a product development capability focusing on data communications technology. The Canadian CM is looking to combine this capability, where it makes sense, with contract manufacturing.
Still, contract manufacturing is Icron's bread and butter. Icron does both consignment and turnkey work all the way from product development through packaging. Testing includes burn-in as well as in-circuit and functional. Icron is currently running one high-speed SMT line based on Panasonic equipment. Offering fast order turnaround, the CM is also promoting its ability to take on RF projects.
Icron sees quality as another asset. "For one customer, we've produced probably 50,000 boards so far with zero functional failures," says Dave Dunnison, Icron's VP of business development.
So far, Icron has exceeded expectations. "We had a goal of four to five customers this year [1998]. We're already at six. So we're pretty happy about that," remarked Dunnison late last year. Icron serves Western Canada and the Pacific Northwest.
In the U.S. market, the company has been able to take advantage of the Canadian exchange rate. "Mostly because of the exchange rate, we've found that we're extremely competitive. In fact, we have quoted to some U.S. customers where we were competing against Taiwan, and we found that our prices were competitive with Taiwanese suppliers," says Lee Austin, Icron's VP of sales.
When it comes to consolidation, Icron's Dunnison has a counterintuitive view. He believes that consolidation will lead OEMs to search for new sources such as Icron.
Provision Entertainment. Covered by MMI before, this new company in Chatsworth, CA, may be the only CM specializing in the entertainment industry (Aug.'98, p. 7). Recently, Provision landed a contract from a major Southern California-based entertainment company to produce designs and concepts leading to the manufacture of a new attraction planned for several entertainment centers in North America.
"We are very excited about this contract and see this as validation by a huge corporation of the services we provide to the industry," states Curt Thornton, president and CEO of Provision.
The start-up describes itself as a contract manufacturing and systems servicing provider of manufacturing, engineering, service and installation to OEMs and their customers. Services include contract assembly, systems integration, project management and creative design.
Qualcon. Located in Flowery Branch, GA, this CM was established to provide continuous flow manufacturing (CFM) services exclusively. Qualcon's founder and president, Bob Bilbrough, has promoted CFM extensively, having appeared in SMT magazine and MMI as well as speaking at the Presidents' Conference of the IPC (May '98, p. 9).
Recently, Qualcon selected Electronic Systems Products of Norcross, GA, as Qualcon's design partner. ESP, a division of ANTEC, offers competencies that include RF design engineering, digital and ASIC development, and embedded software through a staff of 80 professionals. Clients of ESP include Nortel, BellSouth Cellular, TCI, PrimeStar Partners, Scientific-Atlanta, Hewlett-Packard and Cisco Systems.
"We are fortunate in that Atlanta is the hub of design consultancy in the Southeast. Qualcon had a wide variety of providers from which to choose," Bilbrough comments.
Operational since January 1998, Qualcon provides CFM consignment, turnkey and box build services to OEMs including Lucent Technologies, Motorola and Scientific-Atlanta.
U.S. Manufacturing Services. Founded by three engineers from Product Kaman Aerospace, this EMS start-up in Mansfield Center, CT, has staked out a niche that is heavy in engineering services. In addition to EMS, U.S. Manufacturing offers such engineering services as customer specification preparation, conceptual design, detailed design, initial prototype build, test and evaluation, and process engineering.
"Most contract manufacturers want mature products so they can crank them out. We'll go right from concept," declares Andrew Sadlon, president of U.S. Manufacturing and one of its founders.
The company accepts design work as long as it leads to manufacturing. "We take on design and manufacturing. We take on design only to manufacture," says Sadlon.
Like other small providers, U.S. Manufacturing can be nimble when the need arises. In one case, a customer came in on a Wednesday with no specification and was presented with 20 prototypes on the following Tuesday.
A niche strategy can also be seen in the CM's customer base, which mostly comes from the Northeastern U.S.. "A lot of customers tend not to be electronic product manufacturers," reports Sadlon. Such customers with mechanical or electromechanical products typically do not carry the electrical engineering staff needed to handle electronics design. U.S. Manufacturing can supply them with engineering services, prototypes and manufacturing, all from one provider. Sadlon says 80% of the work done by U.S. Manufacturing has to do with motion control.
Although the company offers manufacturing services through box build, it is not set up for high-volume SMT. For that capability, U.S. Manufacturing has teamed up with Imperial Electronic Assembly of Danbury, CT. In addition, U.S Manufacturing has partnered with U.S. Product Mechanization Company, located in the same mill complex as U.S Manufacturing, for high-volume mechanical assembly.
As for consolidation, Sadlon believes that it is occurring in the consumer products end of the market where economies of scale are important. U.S. Manufacturing, on the other hand, is looking at business that might amount to 10,000 units a year. "For this type of order, service is more important than half penny price issues," he remarks.
Northern Telecom (Toronto, Canada) just announced a restructuring program that will involve plant divestitures, manufacturing rationalization, greater reliance on outsourcing, and redeployment of employees. The company expects the three-year program to affect about 10% of Nortel's work force of some 80,000 employees.
Reportedly, Nortel has 24 plants that will fall under this program.
The company will shift from vertical integration for most of its products and to a virtual integration model where Nortel acts a systems house linking customers, design centers, internal production centers, contract manufacturers and other resources.
As the program evolves over the next 18 to 36 months, the company expects to save $250 to $300 million a year in the "outer years." The program is not expected to significantly impact 1999 financial projections.
Nortel becomes the second telecom equipment supplier after Ericsson to announce a large-scale outsourcing program. Lucent Technologies has also embarked on an outsourcing program, but won't discuss it.
IBM has agreed to sell its ECAT (Electronic Card Assembly and Test) operation in Austin, TX, to Solectron (Milpitas, CA). This news comes seven months after Solectron acquired IBM's ECAT facility in Charlotte, NC. As part of the Austin deal, Solectron has a three-year commitment to supply IBM with a full spectrum of PCB assembly services and will become sole source for motherboards in IBM notebooks. Pending government approvals, the deal is expected to close within one or two months.
Solectron will lease a facility with a capacity of 405,000 ft2 on IBM's Austin campus and will offer jobs to about 1300 IBM employees. Within three years, Solectron will merge the ECAT operation into Solectron's Austin campus, recently expanded to 680,000 ft2 of capacity. Together, the two Austin operations, which are less than 10 miles apart, will form Solectron's second largest manufacturing complex.
Financial details were not released. But MMI believes the Austin ECAT facility will generate more revenue than the Charlotte ECAT, a plant of roughly the same size. That's because Austin is said to be fully loaded, while Charlotte was underutilized when it was acquired. Since Solectron put the Charlotte facility at about $400 million a year, it is not unreasonable to estimate that Austin, whose work force is 1.9 times larger than Charlotte's 700 employees, will contribute more than that figure. One can apply the work force ratio and calculate a revenue number if one assumes a comparable revenue per employee in the two facilities despite different product mixes. Two published estimates range as high as $800 million.
Solectron says the deal may add to revenues in fiscal Q3 and expects the transaction will contribute positively to earnings four to six months after it closes.
The deal will also give Solectron access to more than IBM 100 patents in the design and manufacture of notebook motherboards.
IBM's ECAT management team in Austin will join Solectron. Both Austin facilities will report to Mike Sauer, Solectron's corporate VP and president of the provider's current operation in Texas.
From the ECAT facility, Solectron will supply board assemblies to IBM sites in Guadalajara, Mexico, and Greenock, Scotland. The provider will also offer new production introduction support globally to IBM design teams.
Meanwhile, Solectron intends to raise about $500 million, excluding overallotments, through an offering of convertible senior notes. The company plans to use the proceeds for general purposes, including capital expenditures and working capital. A portion also may be used to acquire or invest in complementary businesses or products or to obtain technology. Solectron has filed a $1-billion shelf registration, which the company does not expect to connect with the IBM Austin deal.
Finally, Solectron has declared a 2-for-1 stock split and has been added to the S&P 500 Index.
SCI Systems (Huntsville, AL) and VeriFone, a subsidiary of Hewlett-Packard, have entered into a nonbinding agreement whereby SCI will take over the VeriFone Electronics opera-tion in KunShan, China. In addition, Silicon Graphics, Inc. has chosen SCI to manufacture its new visual workstations built to order.
The proposed acquisition of the 210,000-ft2 VeriFone facility on 12 acres will give SCI its first plant in China. This facility produces electronic payment processing systems such as credit verification terminals, printers and cash register systems. SCI will supply VeriFone under a multiyear agreement. The provider plans to offer jobs to the facility's 560 employees. Subject to due diligence and regulatory approvals, closing is expected to occur in Q2.
Bear, Stearns & Co. (New York, NY) believes the supply agreement could add $300 to $400 million in annual revenue for SCI. The firm reports that VeriFone already had government approvals to manufacture both for export and the local market.
Silicon Graphics says its contract with SCI will allow Silicon Graphics to support greatly expanded unit volumes and achieve economies of scale in line with mainstream competitors. In Q1, orders for the new Windows NT workstations are expected to be filled within ten working days.
SG Cowen Securities (Boston, MA) estimates that six to 12 months into the program this contract will be worth $300 to $500 million in annual revenue.
Flextronics International (San Jose, CA) has signed a letter of intent to purchase the ABB Automation Products manufacturing operation in Vasteras, Sweden. Among the products manufacturing there are PCB assemblies primarily for ABB's industrial automation business.
The EMS provider plans to offer jobs to the 575 people employed in the ABB operation.
ABB says keeping production in Vasteras gives employees the opportunity to retain their jobs and allows ABB to stay close by its supplier, which is important for cooperation between the two parties.
Flextronics says this deal will create excellent opportunities for the company in a new segment, industrial electronics. What's more, the deal will make ABB an important customer of Flextronics, and negotiations about a long-term partnership agreement are taking place. The parties expect to sign a definitive agreement after completion of negotiations with employee representatives and approval by Swedish authorities.
Deal done...Celestica (Toronto, Canada) has completed its merger with International Manufacturing Services (Nov.'98, p. 1-3). IMS is now a wholly-owned subsidiary of Celestica and will operate as Celestica Asia. The deal was worth about $177 million, including shares exchanged, stock options and assumption of $37 million in debt. As a result, Celestica is issuing about 7.6 million subordinate voting shares and expects to record a noncash write-off about $12 million.....Deal not done...I-PAC Manufacturing's (Carlsbad, CA) proposed acquisition of Technetics, a CM in El Cajon, CA, has fallen through (Nov.'98, p. 11).
New programs...According to Bloomberg News, analysts have said JIT Holdings Ltd., a public Singapore-based CM, will manufacture power supply boards for Apple. JIT recently landed a program to produce pagers and mobile phone components for Motorola, adds Bloomberg. The CM recently raised S$27 million through a stock offering, which Bloomberg reports will be used for new plants in Mexico and Hungary and for expansion of facilities in China and Singapore. (See Dec.'98, p. 7)....World Electronics, a CM in Reading, PA, is involved in the manufacturing of an electronic book from Everybook (Middletown, PA)....Jabil Circuit (St. Petersburg, FL) has started production for a new customer, Network Appliance, in Jabil's new plant in San Jose, CA.
New plants...Jabil Circuit has agreed to purchase a 50-acre campus location in Boise, ID, and expects construction to start in the spring. The company has also broken ground on a 60,000-ft2 headquarters building in St. Petersburg....SCI Systems has completed a 182,000-ft2 facility in Huntsville, AL, as the first phase of a planned multiphase project. The facility is dedicated to a large multinational OEM in the high-end consumer electronics market. Several hundred people are expected to work there during the first year of operation. In addition, SCI has finished a 110,000-ft2 facility in a suburb of Guadalajara, Mexico, called Tlajomulco. This new plant again represents the first phase of a multiphase project planned for the site. SCI expects to employ more than 1000 people in the facility during its first year. Initial products to be manufactured there will include controller cards, satellite TV receivers, subassemblies for a large U.S. OEM, and finished printers for a large U.S. multinational OEM.
With manufacturing in China, Hong Kong, Mexico and Silicon Valley, GET Manufacturing (Mountain View, CA) is looking to expand into Europe. Of course, this is a natural strategy for a company that wants a global presence in the three major markets. Yet GET also has strong ties to Europe. "We have almost 45% of our customer base in Europe," says Richard Gourley, GET's corporate VP of worldwide sales and marketing.
GET sees opportunities in Scotland, France, Spain, Portugal and Central Europe. The choice of location will be customer driven. "It's important to be where our customers want us to be," Gourley points out.
Actually, the company is taking a two-pronged approach to Europe. "From our perspective, there are really two opportunities. One is to provide design services capability -- some sort of prototyping capability -- somewhere. And again that will depend on which customer we partner with," says Gourley. "The second thing then is to have the more robust manufacturing capability in one of the locations."
When would GET pull the trigger? "We'd like to do it 1999, but we need to do it when it makes the most sense for the customers," he answers.
How would GET obtain a European site? "What we've seen for the most part, at least on the manufacturing side, is that acquiring it makes the most sense because you assume the revenue stream," Gourley responds. While GET is leaning toward acquisition of an OEM facility, the company does not rule out a greenfield site.
Any deal GET makes must take into account GET's box-build capabilities and its focus on six market segments: telecommunications, internetworking, office equipment, medical instruments, computer peripherals and industrial controls.
In keeping with GET's emphasis on Europe, the company recently hired Francis Massera as managing director, Europe. Based in Brussels, Belgium, Massera heads up sales and marketing for Europe, the Middle East and Africa. He had been VP of Europe for Adaptec.
GET hopes to go public on the Nasdaq at some point in the next 18 months.
New software for the EMS industry...According to Digital Market (Sunnyvale, CA), three out of the five largest CMs have installed its Digital Buyer software, an Internet-based sourcing and procurement package that handles activities such as quoting, ordering, supplier performance reporting, and approved vendor lists.
Management changes...At SCI, Jerry Lee has taken charge of its Asian Divisions in place of Peter Scheffler, who was reassigned to headquarters. ...Steve Ng, Solectron's chief materials officer, is retiring due to health reasons. Kevin Burns has been named VP of global materials services.
MMI December 1998
MMI February 1999
