Feature articles
IMS Deal Puts Celestica in World League (cover story)
Global EMS Club Adds New Members (cover story)
More Asia-Based CMs Looking for Business Elsewhere
Sumitronics: Targeting the Top Tier
Study Pegs PCB Assembly Market
News
NatSteel Buys Into the Channel
Celestica, the third largest EMS provider, has made good on its pledge to manufacture in Asia and thus joins the ranks of tier-one global players. Under a merger agreement announced this month, Celestica plans to acquire the stock of International Manufacturing Services (IMS), an EMS company that will give Celestica manufacturing plants in Thailand and China as well as in North America.
"We've obviously been talking very openly about being full global," says Eugene Polistuk, Celestica president and CEO. "And this has been a missing part of the equation."
The acquisition of IMS also signifies something else. After the deal closes, there will be one less player in that middle range between small CMs serving local customers and the large global providers.
This deal is Celestica's 12th acquisition in two years and its largest with a value of about $160 million. Included in the transaction value are about 18.6 million shares of IMS common stock, stock options and the assumption of about $20 million in IMS debt. Celestica will convert each Class A and Class B share of IMS stock into 0.4 subordinate voting share of Celestica stock or, at the shareholder's option, $7 in cash.
The transaction also extends IMS' geographic reach, but into a different region -- Europe -- through Celestica's operations in Ireland and the UK. "What you typically find is a major OEM has a range of products, some of which are better suited for a low-cost manufacturing solution. Others are better suited for a domestic or European manufacturing location. So this gives us an ability to collectively satisfy the needs of the most demanding OEMs," says Robert Behlman, IMS president, CEO and chairman.
So each company fills a gap in the other company's geographic coverage. "This is an excellent time [to merge] considering the imperatives that we jointly had to expand globally. And this is very, very synergistic from that point of view," notes Polistuk.
Lacking an Asian presence, Celestica had been at a disadvantage when competing against other tier-one players. "There's business that we've not won because of it," Polistuk tells MMI. Celestica was also aware of those OEMs that believed Celestica would get to Asia, but wanted the company there as soon as possible.
In Asia, Celestica will gain IMS plants in Changping, China, and Siracha, Thailand, as well as a logistics and procurement center in Hong Kong. IMS also operates in San Jose, CA, its headquarters, where services range from design and prototyping to medium-volume manufacturing (see table below). The San Jose operation has offered U.S. customers a gateway for transferring production to IMS' Asian facilities.
What's more, IMS has a new leased facility of 112,000 ft2 coming on stream in Monterrey, Mexico, at the end of the year. Coincidentally, Celestica also chose Monterrey for its expansion into Mexico. Not only that, the two companies are located in adjacent industrial parks. The new IMS facility will become part of Celestica's Monterrey operation, which is planned for about 500,000 ft2. That operation also includes an existing plant, acquired from Lucent, and a new leased facility under construction (Oct., p. 7).
"That both of us independently had picked Monterrey at nearly identical sites just shows the compatibility in our thinking and what we value," says Polistuk. Moreover, he expects this compatibility to make integration of the two companies "significantly easier."
When combined with IMS, Celestica will have 24 sites with a capacity of 3.2 million ft2 space. IMS will also add about 3600 employees, bringing Celestica's work force to some 14,000 people.
Although much of IMS' manufacturing takes place in Asia, CEO Robert Behlman says the Asian financial crisis played no part in IMS' decision to make this deal. "The Asian financial crisis, as people think of it, is an activity that has essentially benefited us in terms of reducing our cost structure," he points out. "Probably, 10% or less of the products that we actually build are ultimately shipped into the Asian market. So it hasn't been a big impact on us," adds Behlman.
IMS' roots in Asia can be traced to its origins as a manufacturing unit of Maxtor, which originally acquired IMS' Hong Kong operation in 1990. After becoming a wholly owned subsidiary of Maxtor in 1994, IMS was spun off as an independent EMS company in June 1996, followed by an IPO in October 1997.
IMS has reduced its dependence on Maxtor business such that Maxtor accounted for 42% and 25% of sales in fiscal 1998 and Q1 fiscal 1999 respectively. Other top-five customers are Bay Networks, representing 19% of fiscal Q1 sales; Diamond Multimedia; Polycom, for which IMS acts a sole source; and Matrox, to which IMS recently began volume shipments.
According to Eugene Polistuk, IMS adds several important customers to Celestica's portfolio. Also, he reports there is "very little overlap" in the customer sets of the two companies.
In addition, IMS helps Celestica stake out a position on the cost-sensitive side of EMS. "We've built up an excellent reputation for technical capability and quality capability, and as a matter of fact, nearly to a fault from the point of view that people felt that's our strength and that we might be weak on the cost side," says Polistuk. Celestica has been countering that view with its expansion in Mexico and plan for Central Europe.
"With the experience that IMS brings where they have a very solid, established base in cost-sensitive products and very, very competitive cost points, this adds a whole new layer of capability," says Polistuk. He describes the addition of IMS as completing a spectrum of offerings from low end, low cost to high end, high complexity.
Ranked 23rd in the MMI Top 50 for 1997, IMS is the second mid-range player in recent weeks to agree to be acquired by a larger EMS provider. Altron, which has opted to become part of Sanmina, was first (Sept., p. 4). What's more, another four mid-range operations have been swallowed up this year (see table below).
Will other mid-tier players lose their independence to industry consolidation? Polistuk believes a set forces have come into play where "scale is becoming very, very important." A large-scale provider can offer geographic coverage, buying power, IT infrastructure, engineering firepower, and financial resources that make it "harder and harder for the mid-range people," he contends. "To be effective, I think they will need to be very focused because they will get progressively disadvantaged."
In a recent case, a large customer replaced seven CMs with one global provider -- Celestica. "That's a trend I just see more and more of," notes Polistuk.
Still, he believes the midtier players that can differentiate themselves will be fine. "It's the confused ones that are vulnerable," he adds.
Although the IMS deal puts Celestica in Asia, the company has not completed its global expansion program. Celestica plans to be in both Central Europe and Brazil by mid 1999. Polistuk expects that two more acquisitions will be needed to finish this expansion.
At the heart of this expansion program is the need for sales growth. Celestica wants to reach the $10-billion level in three years. With that goal in mind, Celestica expects to remain active on the acquisition front. "If we're going to grow from in excess of a $3-billion run rate pre-IMS up to $10 billion, and historically we run about 50% acquisition and 50% organic [growth], we will have to be reasonably active over the next three years," says Polistuk.
Meanwhile, IMS has warned that it expects results for its Q2 ended Oct. 31 to fall short of analysts' forecasts due to lower than expected demand from certain customers in computer peripherals and telecom. The company anticipates sales of between $87 million and $92 million, down from $130.3 million reported in Q1. With Q2 sales in this range, IMS would normally expect net income to approximate break even. But a customer in financial difficulty may cause the company to write off asset balances of about $3 million, causing an operating loss for the quarter.
For fiscal 1998, IMS earned net income of $11.1 million before dividends on revenue of $312.5 million.
This deal is subject to IMS shareholder and regulatory approvals. Already, institutional investors together holding about 45% of IMS shares have pledged to vote in favor of the merger and to swap their stock for Celestica shares.
The $7 cash offer for IMS shares amounted to a 37% premium over the stock's closing price on the day before the deal was announced.
The transaction will make IMS a wholly-owned subsidiary of Celestica. IMS' management team will continue to run Asian operations.
Time was when only a few EMS providers could offer manufacturing in North America, Europe and Asia. But today, if a provider does not have a global offering, it stands to lose out on strategic partnerships with certain OEMs, particularly large multinationals. As a result, more and more providers are going global.
At present, a dozen EMS companies can claim a manufacturing presence
in the world's three major markets. That's up from nine in July 1997. After
Celestica acquires IMS and The SMT Centre opens its joint-venture facility
in China, the number will go to 14, as shown in the global capabilities
grid below.
What's more, this global expansion is not limited to the largest players with the big names. Pemstar of Rochester, MN, and Saturn Electronics & Engineering of Auburn Hills, MI, for example, have not yet made the global list, but are planning to. Both providers have Asian operations and are preparing to make a move into Europe.
While not all global players are in the top tier, the largest EMS companies tend to have more foreign locations. Indeed, the company with the most EMS revenue, SCI Systems, also operates facilities in the greatest number of countries -- 15.
The region attracting the most dramatic expansion of late is Central Europe, which is becoming the manufacturing equivalent of Mexico. Global providers are hustling into Central Europe, just as they did earlier in Mexico. By July 1997, one global provider, SCI, had announced a plant in Central Europe. Today, five independent providers and one OEM have EMS operations in the region. And others such as AVEX Electronics, Celestica, GET Manufacturing and Pemstar have said they will enter.
Brazil, a hot telecom market, has created its own boom of sorts. Although Brazil cannot boast the EMS sales potential of Europe, five global providers have already landed in the country, the most recent being AVEX. See article on p. 7.
Providers based in North America continue to dominate the list of global players. However, at least one Asia-based company plans on joining this list. See Sumitronics article on p. 5.
A number of Asia-based CMs have cracked the MMI Top 50, and two -- NatSteel Electronics and Venture -- are in the top ten. But others are also vying for international business. Three such players have recently contacted MMI with an eye toward gaining more visibility for themselves. This is probably no coincidence as the Asian financial crisis is prompting Asian companies to seek customers outside of the distressed region.
But it takes resources to expand a CM's customer base beyond its home region. And Asian contractors seeking U.S. or European customers won't find it easy to capture them. OEMs want to see manufacturing capabilities, financial strength, customer support, and good reasons not to use the Asian plants of multinational CMs. This is a tall order for small Asian providers. Larger operations, however, stand a better chance.
Three such organizations are covered below. None are household names in contract manufacturing, yet all three bring more resources to bear than expected from most Asia-based CMs.
Think of EMS providers with a half billion dollars or more in revenue, and you probably won't come up with the name Sumitronics -- Asia. Yet this Singapore-based subsidiary of the giant Sumitomo Group of Japan brought in $500 million in EMS and related revenue last year. And Sumitronics is projecting $650 million in sales this year.
What's more, the company operates five factories in four Asian countries along with eight warehouses in Asia.
Why isn't Sumitronics better known? In the past, the company had focused on the Japanese market, which is often treated as a market apart from the rest of the EMS industry. Sumitronics' clientele of Japanese companies includes Sony, Alpine, Oki Data, Epson and Fujitsu.
But over a year ago, Sumitronics adopted a global strategy to take on the billion-dollar players in the EMS top tier. "In order to compete with top-tier contract manufacturers, Sumitronics must have a global presence for manufacturing and logistics management," says Michael Arehart, sales and marketing manager based in Sumitronics' U.S. operations center in Santa Clara, CA.
According to Arehart, "the depressed economic conditions in Southeast Asia just accelerated our focus" on that strategy.
After entering the U.S. market in February, Sumitronics has partnered with one contract manufacturer in Northern California and a second in Southern California. These CMs provide Sumitronics with quick-turn capability for prototypes and preproduction as well as high-mix moderate-volume production. The company also plans to establish partnerships in the Southwest and Northeast.
Sumitronics operates two factories in China (Shenzhen and Zhonshan) with a total of 12,000 m2 (129,000 ft2) and 34 SMT lines. The company's Thailand plant houses 40,000 m2 (431,000 ft2) and 5 SMT lines, while factories in Indonesia and the Philippines add a total of 11,024 m2 (119,000 ft2) and 13 SMT lines.
Factories specialize in communications products including RF, networking products, PCs and server products, consumer electronics, peripherals and industrial electronics.
In addition to manufacturing services, Sumitronics provides engineering and PCB design services, logistics management and supply chain management. For the latter, the company maintains eight distribution warehouses in seven Asian countries for component kitting and delivery. Sumitronics projects that its component purchases for 1998 will exceed $200 million.
"Sumitronics has enjoyed healthy growth in Southeast Asia, bucking the trend in this economically depressed region, and will continue to broaden its presence in the area," notes Arehart. "However, a key component for continued growth is customer diversification and expansion to meet these customers' needs globally. Our aggressive growth model includes factories in Mexico next year to provide mass production and cost-effective U.S. market penetration, as well as manufacturing in Europe and South America in 1999."
Arehart says his company's goal is to top a billion dollars in contract manufacturing and supply chain services "hopefully by 1999, but certainly by 2000." He adds, "That's not an unreasonable expectation given our growth the last several years."
Note that the Sumitomo Group is not a major contributor to Sumitronics' revenue. Of Sumitronics' $650 million in projected revenue for 1998, Sumitomo subsidiaries will account for only about $60 million.
A second Asia-based company, Lim Manufacturing (Pte) Ltd. of Singapore, also operates a contract manufacturing business within a larger enterprise. Contract manufacturing represents 30% of sales for the private company, which also offers services in the ship repair, conversion and construction industries.
Although Lim operates plants in three Asian countries, including two sites in China (Shanghai and Chengdu), its largest facility by far is located in Hungary. Plants in Singapore, Cambodia and China house 10,000 ft2, 20,000 ft2 and 90,000 ft2 respectively, compared with a Hungarian facility at 480,000 ft2. These plants perform other services as well as contract manufacturing. For example, the Hungarian plant manufactures Lim-designed products for digital microwave radio relay equipment, symmetric pair transmission systems and PCM multiplexers.
Lim is promoting itself as a one-stop service for warehousing and logistics, packaging and SMT-based contract manufacturing. The company provides warehousing and logistics services at its warehouses in Singapore, Cambodia, Dubai and Hungary. Also, Lim offers to build computers to order in Singapore.
Having been in the contract manufacturing business for a few years, Lim has kept a somewhat low profile. Lim could ask for more attention, though, given the volumes of its contract manufacturing operation. Lim reports a current rate of 200 million placements per month for the operation. Numbering more than 20, EMS customers include Western Digital, Maxtor, Teac Electronics, Asahi Electronics, Comvision, Berg, Aiwa, Philips and Bosch. Of Lim's 1224 employees, 727 are involved in contract manufacturing.
While Lim has both Asia and Europe covered, it has no plans to manufacture in North America in the near future.
Ocean Information Holdings Ltd. (Hong Kong), a long-time supplier of PC motherboards, has seen its EMS sales surpass the sales of other Ocean businesses including motherboards. EMS sales for fiscal 1998 (ended March) were reported at $100 million compared with a total of $70 million from Ocean subsidiaries in motherboards, PC chassis and investment activities. The company says EMS sales are growing at 30% per year.
Ocean believes that its history in PCs and electronics will lead to success in EMS. The company points out that it has been qualified for manufacturing by such major OEMs as Compaq, IBM, Fujitsu and NEC.
Based in China, contract manufacturing is carried out by a subsidiary called Ocean Manufacturing Ltd. The parent company has two facilities in China. One plant in Shenzhen houses 270,000 ft2, 3000 workers and 15 SMT lines. A second plant with 150,000 ft2 and 750 workers is mainly used for manufacturing PC chassis.
Services include PCBA, finished goods assembly, procurement, drop shipments, and local stocking and replenishment. Ocean specializes in high-volume runs and manufactures such products as PC riser cards, PC video adapters, networking hubs and audio speakers. The company promotes its facilities as world class and its engineering support as strong.
Founded in 1982 as a computer retail operation, Ocean set up its first plant in 1990 to produce motherboards and peripherals in China. The company entered the EMS business in 1994. Today it conducts EMS sales efforts through offices in San Jose, CA; France; the Netherlands; and Australia.
A new study by Electronic Trend Publications (San Jose, CA) estimates that the 1997 value of PCB assembly worldwide amounted to $342 billion, of which $215 billion, or about 63%, came from the 50 largest OEMs. The Worldwide Assembly Market further estimates that $87 billion in PCB assemblies, or some 25% of the world's PCB assembly value, was outsourced last year. Of the amount outsourced, purchases of standard PCBAs represented about $59 billion, says the study, while about $28 billion went to contract manufacturers.
The ETP report names Hewlett-Packard as the largest outsourcer of PCB assembly and puts the value of HP's PCBA outsourcing at $6.7 billion in 1997. Coming in second was IBM, which outsourced an estimated $6.5 billion in board assemblies.
It comes as no surprise that the four largest internal assemblers of PCBs were Japanese companies, led by Hitachi with an estimated $17.8 billion in PCB assembly value for 1997. The other three were Sony, Matsushita and Toshiba.
According to the study, North America accounted for $41 billion in outsourced board assemblies, or nearly 48% of the 1997 world market in outsourced PCBA. The Pacific Rim and Europe accounted for 23% and 21% respectively of the world market.
As one would expect, North America led all regions with the most PCBA value, estimated at $98 billion in 1997. Outsourcing amounted to about 42% of the region's PCBA value.
The ETP report not only provides estimates of the PCB assembly market for 1997 including the top 50 OEMs, but also presents forecasts through 2002. For more information, call Electronic Trend Publications at (408) 369-7000.
Meanwhile, a second market study, done by Frost & Sullivan (Mountain View, CA), puts the medical CM market at $1.5 billion in the U.S. for 1997, while the U.S. market for contract manufacturing of datacom products amounted to an estimated $3.5 billion last year. According to Contract Manufacturing Markets for Data Communications and Medical Markets, datacom typically generates about 10% to 30% of sales for large CMs. The study finds that smaller CMs account for most of the medical CM revenue.
The analysis of each market includes revenue forecasts, market shares, technology and market trends, competitive issues, and strategies. This study also covers the OEM point-of-view on issues such as the propensity to outsource different services, selection criteria, current suppliers, outsourcing challenges, and the future of contract manufacturing. Contact Frost & Sullivan at (650) 237-4324.
Finally, Allied Business Intelligence (ABI of Oyster Bay, NY), a new entrant in EMS market research, has estimated the 1997 world market for contract manufacturing at $67 billion, of which the U.S. generated $21 billion, or 31%. Next in size was Japan with 26% of the market, followed by the rest of Asia and Europe at 20% and 17% respectively. The firm predicts that the world market will likely exceed $300 billion by 2004, while in the U.S., assembly services will approach $100 billion.
ABI has combined research on the bare board and contract manufacturing industries in an upcoming report, Printed Circuit Board and Contract Assembly To 2004 -- US and World Markets, End-Uses, Technology, and Competitors. For more information, call (516) 624-3113.
Earlier this month, Robert McIntyre unexpectedly resigned as CEO of AVEX Electronics (Huntsville, AL) after taking the job just six months ago. He left for personal reasons, reports AVEX. Jeff Nesbitt, a former SCI executive and current member of the AVEX Operating Board of Directors, has succeeded McIntyre as CEO.
In other news, AVEX recently acquired a 40,000-ft2 SMT facility in Campinas, Brazil, from an unidentified OEM.
Retired from SCI, Nesbitt joined the Operating Board in September. While at SCI, he most recently served as senior VP, Europe, with responsibility for SCI's facilities in Scotland, Ireland, France and Hungary, as well as marketing, design services, finance and human resources throughout Europe. Nesbitt started at SCI in 1985.
"While we regret the departure of Bob McIntyre, we have great respect for his personal decision. The transition between Jeff and Bob has been seamless, because we have a planned programmatic management approach to deal with unforeseen changes like this one," states Peter Francis, chairman of the J. M. Huber Corp., AVEX's parent company.
That approach involves designating people as back-ups for key positions, and it was also used when Chuck Tillett, AVEX's VP of worldwide operations, left to run EFTC's manufacturing business (Oct., p. 6). He was replaced from the inside by Greg Smith, an operations veteran who was hired earlier with that role in mind.
About three months ago, another executive, Todd Westbrook, resigned to join a Huntsville start-up called Zae, in which AVEX owns an interest. Westbrook had served as AVEX's VP of technology and business development. The company says Westbrook, like Tillett, left to pursue career goals.
"Every time something [like this] happens, it's magnified by the past," Larry Hanlon, AVEX director of worldwide marketing told MMI before the CEO announcement.
In recent years, continuity of management has been an issue at AVEX. Since the fall of 1993, the chief executive position at AVEX has been held by four people, not counting the latest change. After chairman Peter Francis served a stint as temporary president, he was succeeded by an executive who lasted a year. Then Jack Kirker was brought in as CEO, but according to Larry Hanlon, Kirker was hampered by serious illness and the leadership below him was not as strong as it needed to be.
This lack of continuity at the top took its toll on AVEX's management staff. "A number of people felt their skills could be better utilized and ultimately said, 'I'm going,'" notes Hanlon. Changes in management staff also occurred, in some cases, with the arrival of a new chief executive.
Despite this history, Hanlon reports that AVEX's reputation is "actually quite good," based on studies the company has done. Though AVEX was not rated as high as SCI or Solectron, "we were liked, thought well of," he says.
Having lost people in the past to competitors, AVEX recently drew the line when four management employees walked out on the same day. "You've got to stop having AVEX raided when you lose four like that," says Hanlon. "You have to test employment agreements." He adds, "We feel we got the protections needed."
Those four employees -- one from sales, two from operations and one from program management -- were headed to CMC Industries. AVEX reports they won't be able to start work at CMC until the first of next year.
"We really didn't want to be vindictive," says Hanlon. "We had to put a message out that enough is enough."
Although AVEX did not plan on appointing Nesbitt, he does bring one missing ingredient to the CEO position. Nesbitt is AVEX's first chief executive since 1993 with a background in the EMS industry.
"The bad news is: It's a tough break for us right in the middle of a lot happening. The good news is: We couldn't find a better replacement," Hanlon comments.
AVEX won't specify in detail what it is in the middle of. But indications are that the company is repositioning itself to better serve the telecom industry. That industry presently accounts for about 30% of AVEX's business, with the computer industry and consumer products each taking about 30% as well.
"We think clearly our future would be to develop and help telecommunications companies solve their business problems, not to try to copy the model other successful EMS companies have used serving the computer industry," says Hanlon.
This emphasis on telecom has already shown up in recent acquisitions. According to Hanlon, acquisitions made this year were in the telecom sector. That would include the Brazilian facility recently obtained from an unnamed OEM.
After seeing sales slip for two years in row, AVEX expects that its business will grow by about 20% in 1998. "We still have a lot of operational things to change. I think by 1999 we plan to exceed the pace of industry performance," says Hanlon.
Following two acquisitions in California, Century Electronics Manufacturing (Marlborough, MA) has set up shop on the West Coast. The privately-held EMS company has opened a newly consolidated facility of 45,000 ft2 in Santa Clara, CA.
In April, Century acquired QMS, a consignment house that operated a 10,000-ft2 facility with two Quad SMT lines in San Jose, CA. "We brought them in to give us a presence out there. It wouldn't be the type of facility to bring in main customers," says Bob Wennerstrand, VP of business development. Century knew it would have to move, and YMC Manufacturing, which was in some financial difficulty, offered a more suitable 45,000-ft2 facility, a good location off highway 101, and favorable lease rates. So in August, Century bought YMC, also a consignment CM, for a price in excess of a million dollars.
Century then merged the two operations together inside the YMC facility. YMC's three Fuji SMT lines were combined with the two lines from the QMS purchase. Century ends up with a low-volume operation doing low-tech boards together with a high-volume operation doing higher-tech boards. Since the company intends to convert as much consignment work as possible to turnkey, it is adding materials infrastructure including a materials manager and an MRP system.
The West Coast facility will also offer RF capability. "We plan on capitalizing on our RF capability we have here in New England," says Wennerstrand. "Walt Conroy is president of West Coast Operations. He was very instrumental in bringing the technology here."
"We're looking to leverage our relationships with our main customers, which are Bay Networks and 3Com as well as other big guys," remarks Wennerstrand. Main customers provided part of the motivation to locate on the West Coast. The sheer size of that market offered another incentive. The West Coast "is the largest single market for contract manufacturing, my guess is, in the world. We recognized as a global contract manufacturer, we would need to be there," he observes.
Harvard Custom Manufacturing (Salisbury, MD) has quietly assembled an EMS organization of eight facilities in six locations across the U.S. Now HCM is about to become more visible, starting with its latest expansion.
This month, HCM announced the purchase of a 152,000-ft2 building in Owego, NY, from SCI Systems. HCM intends to consolidate two operations in the Binghamton, NY, area into the Owego building nearby. These Binghamton operations were acquired from Ogden Corp. earlier this year when it sold off parts of Atlantic Design. The new facility also provides additional space for growth from New England and the southern tier of New York.
Initially, the Owego facility will house 140 existing employees, two new SMT lines, an existing line, test equipment and final assembly operations. Among the customers moving to the new facility is Lockheed Martin Federal Systems Division, which is served by the Binghamton operations.
SCI constructed this building in 1987 to support IBM Federal Systems, which was eventually acquired first by Loral and then by the Lockheed Martin division. So in a way, the facility's original customer is returning to it. SCI ceased operations there in 1994.
"The experienced, skilled work force and the high tech heritage of the region played a major factor in our decision not to locate outside New York," states Greg Moffitt, president of HCM.
The Owego purchase is not HCM's only expansion in recent weeks. About two weeks ago, the company added a customer-dedicated operation in Rockaway, NJ. HCM has also set up single-customer operations for repair and refurbishment in Fremont, CA, and for configuration and distribution in Austin, TX.
HCM was founded in 1994 through a management buyout of Northrup Grumman's operations in Salisbury, MD. Backed by capital from Charterhouse Group International, HCM has expanded operations in board assembly and box build through organic growth and acquisitions. Before buying Atlantic Design's Binghamton operations, HCM acquired controlling interest in A-Plus Manufacturing last year. A-Plus, an HCM company, operates three EMS facilities in San Jose, CA. HCM now employs over 900 people.
The company has adopted a value proposition that combines complex electronic assembly and customer service. "HCM has emerged as a company that provides customer-focused contract manufacturing services to that portion of the electronics market requiring complex assembly and test services," says Tim Graves, HCM's executive VP of sales and marketing.
"HCM will continue to focus on this value proposition domestically and is poised to expand its services to include offshore capability," notes Graves.
Singapore-based NatSteel Electronics Ltd. (NEL) becomes the second major player in EMS to position itself for channel assembly. But instead of forming an alliance with a large wholesale distributor as Solectron did with Ingram Micro, NEL has agreed to acquire controlling interests in three smaller IT distributors based in Asia.
NEL will take a 60% stake in ECS Computers (Asia) of Singapore and K.U. Sistems Holdings of Malaysia and a 49% interest in The Value Systems Co. of Thailand. These IT distributors serve a total of 2500 dealers in the three countries. Reportedly, NEL will pay an initial sum of S$8 million ($4.9 million). The total amount spent over the next four years could go as high as S$42 million as NEL will have options to acquire the remaining interests depending on future profit performance. Together, the three companies are expected to earn a net profit of S$2 million this year after write-offs on revenue of S$200 million. The three distributors will be held by a new company, ECS Holdings, 80% owned by NEL and 20% owned by management of the new company.
According to NEL, this distribution network will expand the company's role in the global supply chain.
"NEL will inherit a strong distribution network with potentials for further growth in Asia and across the world, while ECS Holdings will now be part of a world-class contract manufacturing group serving global technology leaders. Together we now have the opportunity to venture into the areas of product customization that will require build-to-order (BTO) and configure-to-order (CTO) capabilities," states Chester Lin, CEO of NEL.
The company expects that eventually a customer will be able order a brand name, customized PC through a reseller, and the PC will be built to order in the facility nearest to the point of delivery. This is essentially the same process described by Solectron (Aug., p. 1 and June, p. 8).
NEL says OEMs customers will now be able to streamline their global supply chain, open additional distribution channels and eventually address their build-to-order needs.
Meanwhile, NEL has agreed to sell its interest in Multiwave Innovation Pte for stock in Unico, a U.S. company mainly engaged in marketing.
Under a new agreement, Solectron will assemble BTO computer systems for SED International customers throughout the U.S. SED (Atlanta, GA) is a distributor of microcomputer and wireless communications products to resellers and retailers throughout the U.S. and Latin America. Solectron has said its alliance with Ingram Micro will not prevent it from work-ing with other distributors (Aug., p. 2).
Solectron will build Windows 98 and Windows NT-based systems, the majority of which will be assembled in its Duluth, GA, facility.
More new programs...Based on a recent analysts meeting at SCI, Bear Stearns & Co. (New York, NY) reports that Compaq, after closing its PCB assembly operation in Houston, has sent its PCBA work for desktop PCs to SCI and Solectron in Guadalajara, Mexico. Attempts to confirm this report at Compaq were unsuccessful. Also, ABN AMRO Asia (Singapore) writes that NatSteel Electronics has started production for Compaq desktop PCs in Guadalajara. According to the Asian firm, NEL is building iMac PCs for Apple and will start desktop volumes for IBM in Q1. Bloomberg News reports that NEL is involved in the making of Hewlett-Packard's new Jornada handheld computer, which has reached production in HP's Singapore plant...XEL Communications (Aurora, CO), a Salient 3 Communications company, is outsourcing the manufacture of its telecom product line to U.S. Assemblies New England (Taunton, MA), a subsidiary of The MATCO Electronics Group (Vestal, NY). XEL designs and supplies data and voice transmission equipment....Dovatron International (Boulder, CO), the EMS subsidiary of the Dii Group (Niwot, CO), intends to enter into an agreement with Mylex Corp. to expand Dovatron's role in the manufacture of Mylex's disk array controllers and complementary computer products. Dovatron will assemble boards in several of its facilities and will test and configure products in space leased from Mylex in its Fremont, CA, facility. The agreement gives Dovatron a presence in Silicon Valley....Based on a new contract, Flextronics International (San Jose, CA) will deliver Vertical Networks' (Sunnyvale, CA) communications platform built to order within 72 hours of receiving an order from any of its channel partners....Production of mobile radios for Nokia Telecommunications Professional Mobile Radio unit and of printed circuit boards in Aanekoski, Finland, for Nokia Telecommunications Switching Platforms was outsourced to Enviset, a Finland-based CM....SMTEK International (Thousand Oaks, CA) recently secured a multiyear contract from Haas Automation, a machine tool company. The contract is expected to ramp up to more than $10 million a year.
Potential for large programs... Flextronics reports holding "major new program discussions" with Ericsson, Philips, Alcatel, Compaq, Motorola, Lucent Technologies, Northern Telecom, and others. Telecom is certainly well represented on this list....According to Bear, Stearns, SCI has been in recent discussions with Northern Telecom, Siemens, Motorola and Alcatel. ....Lucent may be a candidate for outsourcing, but the company has told MMI that it will not release any information on the subject.
I-PAC Manufacturing (Carlsbad, CA), an EMS subsidiary of Photomatrix, intends to acquire Technetics, an EMS company in El Cajon, CA, with an 18,000-ft2 facility.
"This acquisition represents the first step in a basic roll-up strategy by Photomatrix to significantly grow our electronic manufacturing services business," states Patrick Moore, CEO of Photomatrix.
For the seven months ended July 31, Technetics reported sales of about $5 million and pretax income of $800,000. In 1997, the company generated sales of $5.5 million and pretax income of $390,000. Under a letter of intent, I-PAC will pay $350,000 in cash and $850,000 in a five-year note. The purchase price will increase based on an earn-out formula, to the extent that net income exceeds $400,000 for 1999. I-PAC will lease Technetics' building.
Photomatrix, a publicly-held scanner company, merged with I-PAC Manufacturing in June. I-PAC Manufacturing and I-PAC Express Assembly now make up Photomatrix's manufacturing group, which Technetics will join as a business unit.
This deal is a central part of a plan to compete in markets that focus on higher volumes. The acquisition will also double manufacturing capacity and provide a presence closer to Tecate, Mexico, where an EMS acquisition is planned.
Facility expansions...Solectron (Milpitas, CA) has announced plans for a 358,000-ft2 campus in Suwanee, GA, to be occupied by May 1999. Duluth and Braselton, GA, operations, acquired from NCR and Mitsubishi Electric respectively, will be relocated to the new campus. The company says it will add capacity in Georgia to meet a growing regional demand for build-to-order services. Existing capacity there amounts to more than 200,000 ft2 in leased facilities. Solectron is buying a 208,000-ft2 building and will add 150,000 ft2 prior to occupancy. Company employees in Georgia total more than 1000....Celestica (Toronto, Canada) has established a leased facility in Nashville, TN, to perform system build for HP initially. Also, the company plans to expand the number of Customer Gateway Centres worldwide to about 10 over the next 12 to 18 months....SCI Systems (Huntsville, AL) reports that its Brazilian subsidiaries, Advanced Electronic Integration LTDA and Advanced Electronic Technology LTDA have occupied a 120,000-ft2 facility in Hortolandia, Brazil (Oct., p. 4)....In Charlotte, NC, OEM Worldwide (Watertown, SD) has opened an 81,000-ft2 facility specializing in low-to-medium volume turnkey assembly and test of high complexity. Services include PCB design and layout, quick-turn prototypes, SMT and through-hole assembly, in-circuit and functional test development, environmental testing, box build and systems integration, and warehousing and distribution.
Plant closings...K-Byte Manufacturing's plant in Saline, MI, has been sold, and its Gaithersburg, MD, site is being closed. Distributor Reptron Electronics (Tampa, FL), K-Byte's parent company, says these actions are part of cost reduction measures taken last quarter, in which Reptron reported a loss of $1.96 million. In Q3, K-Byte earned a gross profit of $4.2 million on sales of $41.0 million.
A Vermont-based company has proven that a contract manufacturer does not need a Massachusetts or New Hampshire address to grow rapidly in New England. VEMAS Corp., a CM in Middlebury, VT, has been ranked 225th on the Inc. 500 list of fastest-growing private companies. At $7 million in sales last year, VEMAS grew by 1300% from 1993 to 1997.
For VEMAS, its Vermont location becomes an advantage. "The work ethic up here is amazing," declares Jonathan Leber, company CEO. Plus there aren't large numbers of CMs vying for trained workers. "If you can get employees and keep them happy, you hope to have a long-term commitment from them," he adds.
The CM employs 70 people in a 28,000-ft2 facility, to which 18,000 ft2 was added earlier this year. SMT capacity is now up to four lines, and VEMAS has added other equipment such as a GenRad 2283E functional tester. VEMAS specializes in both types of board assembly, cable assembly and small system integration. The company says its forte is meeting customer needs, "however unique they may be."
VEMAS' largest customer is Xerox, and the CM also does work for the former Digital Equipment, now part of Compaq, among others. Most customers come from New England. But Leber points out that VEMAS draws customers from the entire region, not just the state of Vermont. "The amazing thing about this industry is: You don't have to be right next door to make it work," he says.
Leber and his wife started the company in 1992. Previously, he spent seven years at Nexus, a CM also in Vermont.
Changes in management...David Garcia has left Flextronics, where he was VP of sales and marketing for the Americas, to join MCMS (Nampa, ID) as VP of sales and marketing with global responsibility....Frank Mokry has been named VP of sales and marketing at K*TEC Electronics (Sugar Land, TX). His previous job was senior business development manager at Dovatron International. ....Massued Behrouzi and Saeed Zohouri have been promoted to president of Solectron California and president of Solectron North America respectively....GET Manufacturing (Mountain View, CA) has appointed K.W. Tse as corporate VP and GM, Asia operations. Formerly, he was VP of operations at Maxtor....International Manufacturing Services (San Jose, CA) has appointed Jim Williams as VP of worldwide sales and marketing. He comes from Solectron, where he most recently served as VP of sales for its California division....Iris Grable, former VP of marketing and business development at IMS, has joined Century Electronics Manufacturing (Marlborough, MA) as VP of sales for corporate accounts. ....At EFTC (Denver, CO), Dennis Ayo has moved from VP of the Services Division to VP of sales, while Brian Tracey has shifted from VP of sales and marketing for the Manufacturing Division to VP of strategic value chain management.....SMTEK International (Thousand Oaks, CA) has named George Weatherford as VP of operations. He had been managing director of the company's Irlandus Circuits operation in Northern Ireland....Will Philips is the new director of marketing for Pantronix's Electronics Manufacturing Division (Fremont, CA), an EMS provider. Pantronix is an IC packager.
