MMI August 1998

Channel Assembly and EMS Converge

A Closer Look at the Alliance of Ingram Micro and Solectron

Channel assembly has been coming on as a demand-based system to supply PCs for resale (Oct. ’97, p. 1). When a channel assembler configures or partially builds PCs to order, OEMs avoid the risk of stuffing the channel with costly inventory that doesn’t move. That is not news. Channel assembly has been around for several years. But the rise of channel assembly has put EMS providers into a quandary of sorts. Channel assemblers are capturing work that otherwise could be done by EMS companies.

Should EMS providers turn a blind eye toward channel assembly and hope it doesn’t advance any further? Do they recognize channel assembly as a valid, but separate route for product delivery? Should they treat channel assembly as a competitive threat? Or do they participate in channel assembly somehow?

Solectron, as the EMS industry knows by now, has chosen the latter. The second largest EMS company is forming an alliance with Ingram Micro, the largest wholesale distributor of technology products, to jointly offer build-to-order and configure-to-order services worldwide (June, p. 8). Ingram is already assembling PCs for the channel in two locations. To these, Solectron will add seven of its own facilities, all of which are currently active in systems build. The two companies also want sites in Canada and Japan in the future. According to the New York Times, the two say they will have capacity to produce 10 million PCs a year.

This month, MMI takes a closer look at why Solectron has taken this step; what it entails; what it means for Solectron; and what it could mean for other providers.

It doesn’t take a Harvard MBA to see that the alliance with Ingram will bring Solectron more systems assembly business. Solectron’s goal for some time has been to increase the system build percentage of its business. The Ingram deal fits nicely within Solectron’s plan to raise the system build portion of its business to 40% to 50% in two or three years.

But Solectron also had other motivation to forge this alliance. “We’ve sensed that if we were to succeed in the whole systems assembly area, we needed to get closer to the end customer. We needed to have relationships with the channel because a substantial portion of the product goes through the channel,” says Mark Holman, Solectron’s corporate VP of marketing and business development. Ingram, Tech Data and the like manage within the resale channel a growing stream of units that not only include PCs but also servers and networking products.

Solectron also saw the chance to help create the business processes that would underpin a new model for supplying OEM products. “What we’re trying to do with Ingram is in fact build the business processes that in some ways take the Dell model to the next step. The Dell model today is a build-to-order model, and this is taking that build-to-order model and marrying it with the choice that you get from the peripheral stream that sits in distribution,” explains Holman.

This new model supports not one, but three product streams. Products can be built directly from telephone or Internet orders as Dell does. An OEM’s sales force can generate orders creating another product stream. Or products can be distributed through the channel on demand.

Solectron’s acquisition of NCR capabilities in BTO and CTO has shown Solectron what must be added to make this model work. “The NCR capability was really analogous to the Dell capability in that the NCR order mix was limited to whatever NCR had chosen for available peripherals and available configurations,” notes Holman. But the alliance will create an exploded product stream and the need to “take virtually an unlimited set of software titles…and a relatively unlimited number of peripherals,” he explains. Systems must also be in place to check for valid configurations, and assembly lines must accommodate multiple OEM brands.

Holman adds, “The other thing we have to do is wire up…from an IS perspective with the distributor so that there’s almost a virtual seamless interface between us and the distribution community. I use the word distribution community very carefully. Although we’re starting with Ingram Micro, we believe that the long-term evolution of this ecosystem will require the contractors of the world, Solectron and others, to wire up with multiple distributors because we must be able to handle orders from not just one distributor, but from multiple.” According to Holman, the alliance will not prevent Solectron from working with other distributors.

Does this mean then that Solectron expects to see other alliances of this type to emerge? “Yes, I would anticipate that we’ll see different evolutions of this,” responds Holman.

Although the alliance is still in the letter-of-intent stage, Solectron has teams evaluating which processes Solectron might be adopt from Ingram, which ones Ingram might take from Solectron, and which ones will be jointly developed. Also, the two companies have agreed on a joint management matrix that includes a sales and marketing staff, program management, information technology resources, and test and process engineers. Overseeing this joint organization will be a committee of perhaps three senior executives from each side. Members of the committee have not been disclosed, but Susan Wang, Solectron senior VP and CFO, is expected to be one of them.

For close to two years, Ingram and Solectron have been discussing ways in which the two might cooperate. These discussions started at the top with the two CEOs, Jerre Stead of Ingram and Dr. Ko Nishimura of Solectron.

This alliance may be a worthy concept, but what about the bottom line? Will Solectron’s margins be affected? Since distributors like Ingram are gaining market share, Ingram doesn’t “need to share the margin of the assembly with us. We still get our fair share of the assembly margin,” Holman answers. “Plus they’re finding that by selling these configured boxes, they’re able to sell a higher portion of higher margin peripheral product than they would have ordinarily if they were just selling a vanilla box.”

“They’re making their money in a different space, and then we’re still making it in our manufacturing value add, the same space that we’ve historically succeeded at,” says Holman. “So in fact, we don’t anticipate any difference in the financial model for this kind of work than we would have for our systems assembly work as a whole.”

Through the alliance, Solectron can also sell its OEM customers on the merits of using the channel. The company says a number of customer discussions have already taken place. Solectron is promoting the alliance as a way not only to remove inventory cost from the supply chain but also to avoid the unnecessary touches that occur when a box has the wrong configuration.

Market Trend

Key Tronic Making ODM Play in Contract Mfg.

ODM, or original design manufacturing, is a relatively new term that is beginning to collide with traditional industry argot. In some minds, ODM signifies the ability to fully design and manufacture an OEM’s product. And at least one company, Key Tronic (Spokane, WA), is using the term to stake out a position within the contract manufacturing market.

Key Tronic, which bills itself as the largest independent keyboard manufacturer in the world, is not content to design and manufacture just keyboards for OEMs. The company has been offering its ODM capability for other outsourced products as well. “We’ve made a lot of inroads with customers,” reports Tom Parrish, Key Tronic’s director of sales and marketing for North America. “We have about eight deals that look like we’re going to land.”

The company has been promoting its design and DFM capabilities, which allow it to perform cost reductions on customer products. One of Key Tronic’s design strengths lies in plastics and molding, where the company maintains a capacity of 116 molding machines and 100 tooling machines. Another selling point centers on Key Tronic’s years of experience in distribution and logistics, which includes putting in distribution sites at a customer’s request. “We hold inventory on our nickel,” Parrish points out. Then the customer can draw inventory on demand.

Key Tronic also prides itself on being able to realize products quickly. Take the case of Toshiba, which used Key Tronic’s ODM services for a multimedia control module that resides on a PC monitor. “They came to us with a napkin sketch, and we turned it into a full product in 13 weeks,” notes Parrish.

But Key Tronic hasn’t had it easy. The average selling price of its keyboards has declined from $47 in 1992 to $12.80 in 1998. Despite ASP declines, the company put together a string of seven profitable quarters before it announced a net loss of $1.4 million for its fiscal Q4 ended June 27. In Q4, Key Tronic saw slower demand from many of its major customers in the computer industry.

“Our disappointing results in the fourth quarter confirm that we must continue to move forward with our transformation of Key Tronic,” states Jack Oehlke, president and CEO. “We are totally committed to making Key Tronic a global player in the broader $100-billion contract manufacturing market, independent of a single product or industry.”

Key Tronic is leveraging its blue-chip customer base to build its ODM business. “We’ve gotten business from a number of HP divisions,” says Parrish. Key Tronic has built printer panels and paper trays for Hewlett-Packard, which is Key Tronic’s largest customer overall.

Other notable customers for ODM are Compaq, Digital Equipment, Gateway 2000, IBM, Kodak, MDI Instruments, Microsoft, PictureTel, Siemens, and Toshiba. For MDI, Key Tronic has done a full box build to produce an ear checker for ear infections. In addition, the company says it has a growing number of promising ODM projects in the engineering phase.

At 165,000 ft2, the Key Tronic facility in Juarez, Mexico, serves as the company’s main plant. A Shanghai, China, plant, opened this year for HP, offers 45,000 ft2 and even lower labor rates for certain programs. Other manufacturing sites are located in Spokane, WA; Las Cruces, NM; and Singapore. Key Tronic operates three surface mount lines and will add SMT capacity as needed.

Of Key Tronic’s $170 million in fiscal 1998 sales, roughly 76% came from ODM business, including keyboards. Non-keyboard programs in ODM represented about 20% of total sales, up from 5% four years ago. Key Tronic says non-keyboard ODM business is currently growing at a 30% annual rate.

Although Key Tronic had been making miscellaneous products going back 20 years, it was only in Q1 1997 that the company decided to commit itself to the contract manufacturing business. As such, Key Tronic could be considered a new player in the business. But Key Tronic needs no introduction to the thin margins expected of contract manufacturer. “We’re already used to playing in a very low-margin business,” Parrish points out. “We don’t have to make very much of a leap here to succeed.”


Solectron To Take Over Mitsubishi Operation

In what is being billed as the first divestiture of manufacturing assets by a Japanese OEM, Mitsubishi Consumer Electronics America (MCEA) intends to transfer its cellular telphone manufacturing in Braselton, GA, to Solectron (Milpitas, CA). The EMS provider will assume responsibility for all North American production of Mitsubishi’s cell phones.

This deal is expected to close by year end, and terms were not disclosed.

After closing, Solectron will begin manufacturing in a 100,000-ft2 leased facility with seven SMT lines. The company intends to offer jobs to about 350 people working in the Braselton operation. Solectron plans to merge this activity with its Duluth, GA, operation into a new Georgia campus, slated for completion in 1999.

Solectron says its program office in Japan was instrumental in laying the groundwork for this deal. “You have to be patient in developing the Japanese market,” notes Mark Holman, corporate VP of marketing and business development. He says other EMS providers hoping to make similar deals without putting efforts into things like a program office “may be disappointed.”

Still, the Mitsubishi agreement shows that the Japanese market may be ripe for major outsourcing deals the way Europe was last year when Ericsson broke the ice. “We’re hopeful that it does portend a beginning of that trend,” says Holman.

“Two years ago, Solectron was hardly a player, nor was anyone in the contract community for that matter, in cellular phone manufacture,” observes Holman. “Today, virtually all of the top cellular phone manufacturers outsource at least a portion of their production to the contract community.” He estimates that cell phones are currently one of the highest growth areas for Solectron.

Midwestern Buys Skyline

Midwestern Electronics, a contract manufacturer based in Olathe, KS, has acquired Skyline Electronics, another CM, which operates in Colorado Springs, CO. Both companies are regional providers each employing more than 200 people including temporary workers. Financial terms were not disclosed.

“We are a high-mix, lower volume regionally based operation,” says David Anderson, president of Midwestern. He explains that Midwestern’s strategy is to create a franchise “serving that distinct high-mix, lower volume segment of the market.” The acquisition of Skyline, which covers the Colorado Front Range market, allows Midwestern to bring its franchise into another region.

Midwestern intends to continue making more such moves. “We are going to try to extend our franchise on a geographic basis,” says Anderson. He adds, “All of our operations will be regionally based. Customers will all be within one day’s drive.”

Founded in 1982, Skyline will retain its name while operating as a subsidiary of Midwestern. Bruce Reeder, president of Skyline, will continue to head up that operation, which maintains 40,000 ft2 in Colorado.

“Capability that we now have collectively serving the Front Range, North Central and Central states markets will enable us to extend the range of services we can provide effectively, while retaining our commitment to responsive, local service,” states Reeder.

The Midwest may not be a hotbed of EMS mergers and acquisitions, but this is not the first time that Midwestern Electronics has made an deal. In January 1997, the company purchased the assets related to North Iowa Electronics of Garner, IA, a CM that was in foreclosure. Then in May of this year, Midwestern picked up Semco in Kansas City, KS, to serve as Midwestern’s small-volume, quickturn facility. These deals took place under Midwestern’s current ownership, an investor group that purchased the company in 1991. Company president David Anderson is part of that group.

Anderson is tight lipped about company revenue. “We do more consignment work than anybody I know. I believe revenue figures grossly distort people’s perspective of our competitive environment because what is really important is your value added…,” he declares.

Midwestern and Skyline provide services including design; procurement; board assembly; wire harness assembly; in-circuit, functional and environmental stress testing; electromechanical assembly; and fulfillment services. The Skyline acquisition brings Midwestern’s total facility space to 140,000 ft2.

Benchmark Heads To Ireland

Through an agreement with the Industrial Development Agency (Ireland), Benchmark Electronics (Angleton, TX) will set up a plant in Ireland for the CM’s first international manufacturing operation. Benchmark expects the new Ireland division to be operational in the second of the year.

The new operation is part of the company’s global expansion strategy. Benchmark says the operation will provide faster turnaround of customer products and allow for overseas repairs or upgrades.

IEC To Acquire Irish CM

IEC Electronics (Newark, NY), a publicly held CM, has made its first move outside of the U.S. by agreeing to acquire selected assets of Ohshima Electronics Manufacturing Ltd., a CM in Longford, Ireland. With about 150 employees, Ohshima Electronics is a board assembly operation doing roughly $5 million in consignment work. Terms were not released. The deal is expected to close by Aug. 30.

“This acquisition will provide IEC with a base of operations from which the company plans to aggressively pursue opportunities in the growing European market,” states Russell Stingel, IEC’s chairman and CEO.

“We were interested in Ireland or an English-speaking European location as a result of customer demand,” explains Diana Kurty, IEC’s CFO. “This particular opportunity was brought to our attention by the Irish Development Agency, the IDA.”

Is this IEC’s first step toward being a global player? “I don’t think it will be the last step. So I think that’s a fair statement,” Kurty responds.

IEC plans to explore opportunities for converting Ohshima’s consignment work to turnkey where possible. The Irish CM is said to be profitable.

Flextronics Sells Plant in Wales

ACW Technology Ltd., a UK-based CM, recently bought the Flextronics International facility in Tonypandy, Wales, UK. Total cost of the purchase was 2.5 million British pounds.

Earlier this year, Flextronics had proposed closing its Wales operation after acquiring Altatron, which included a facility in Scotland (April, p. 5). Flextronics said the Wales operation had not been financially healthy, while the Scottish plant offered a location in technology-heavy Silicon Glen. But rather than shut down the Wales plant, Flextronics found a buyer to take it over.

This purchase gives ACW a facility with 50,000 ft2, bringing the CM’s total space to 86,000 ft2. In addition, the deal has expanded ACW’s work force to 300 people, while the number SMT lines has increased to seven.

Based in Petesfield in southern England, ACW describes itself as a medium-sized contract manufacturer that targets industrial and commercial products with complete product build capability on a turnkey basis. The CM builds products for telecommunications, video conferencing, digital voice recording, industrial control, TV audience monitoring and aerospace.

For the fiscal year ended September 1997, ACW generated sales of 17 million pounds (about $27 million), up from 12 million pounds (about $19 million). Indeed, ACW has made two lists of the fastest growing UK companies.

The Wales purchase “just serves as a springboard for future growth,” remarks Chris Woods of ACW. “We plan to run an operation in England and another in Wales. It’s just a wonderful opportunity to acquire a fine facility and a very good work force who are trained in contract manufacturing, which is a tough business to be in.”

“We look forward to plenty of new business to fill the place,” adds Woods. “There’s a lot of capacity. It’s only running at idle.”

Jabil Closes HP Deal

Jabil Circuit (St. Petersburg, FL), one of the five largest CMs, has completed its purchase of the manufacturing assets of the Hewlett-Packard LaserJet Solutions Group Formatter Manufacturing Organization. The contract manufacturer bought board assembly assets in Boise, ID, and Bergamo, Italy, and is taking over a total of 600 HP employees and 11 SMT lines. Financial terms of the previously announced deal (May. p. 4) were not disclosed.

The newly acquired operations will produce PCB assemblies for all laser printers sold by HP. Jabil will lease HP facilities until it constructs new plants in Boise and Bergamo to be finished next year.

Seven newly equipped SMT lines come with the Boise operation, where Jabil has hired 400 people from HP manufacturing. Randy Della, former HP production manager in Boise, will manage the operation. In Bergamo, Jabil gains four newly equipped SMT lines and 200 former HP employees. In charge of that operation will be Carlo Scocco, who had been factory technical support manager there.

Altron To Gain HP Assembly Equipment

Hewlett-Packard has agreed to sell the board and backplane assembly equipment of its Richardson, TX, facility to Altron (Wilmington, MA), a publicly held CM. The sale is expected to take place on Sept. 1.

Altron will use this equipment in a new 30,000-ft2 plant to be located in the Dallas, TX, area, where the plant will provide services for new product introduction, board assembly, backplane assembly and systems integration. The CM will hire a number of manufacturing personnel from the HP Richardson facility to support this new operation, which Altron expects to be operational in Q4 1998.

EFTC To Add Agfa Operation

Last month, EFTC Corp., a public CM based in Denver, CO, announced its intent to acquire the Wilmington, MA, card assembly operation of Bayer’s Agfa Division. The CM anticipates it will supply Agfa with about $20 million worth of circuit cards a year under a long-term supply agreement. The deal is expected to close by the end of Q3 and be accretive to earnings. Financial terms were not disclosed.

Employing 100 people, the assembly operation produces cards used in Agfa’s electronic prepress systems. EFTC will offer jobs to Agfa employees associated with the circuit card operation, which includes raw board fabrication. The CM will produce about 125 different assemblies for Agfa and will retain the raw board capability for supplying boards to the assembly operation.

“After an extensive search for potential strategic suppliers, we selected EFTC because of their exclusive focus on providing innovative, high-mix manufacturing solutions,” states Michael Paige, senior VP of Agfa Division. “EFTC’s ability to deliver quality products along with our similar philosophies in recognizing employees as a valued asset were key in our selection process.”

As a result of this deal, EFTC becomes a strategic supplier to Agfa. “We believe there are excellent growth opportunities with Agfa both domestically and abroad,” says Jack Calderon, EFTC’s chairman and CEO.

The Wilmington plant will serve as EFTC’s Northeast Manufacturing Operation and will be marketed to other Northeast customers. EFTC plans to augment this site with the prototype capabilities of its Manchester, NH, operation, EFTCexpress, which was acquired earlier this year.

Training and Wages Discussed in Monterrey

In an unusual event for the competitive EMS industry, two EMS providers and an OEM have conferred about training and wages in Monterrey, Mexico.

MMI has learned that Celestica, SCI Systems and Nortel have held four meetings there to discuss the development of a consortium for better training of Monterrey workers and to talk over the possibility of equalizing wage levels in Monterrey. One aim of this consortium would be to donate funds to local colleges and universities, enabling them to enhance training for graduates who will enter the manufacturing work force in Monterrey.

Reportedly, wages are a separate issue still in the discussion stage. If wages were equalized, workers would have little incentive to leave one company for another.

More new business…EMS provider MCMS (Nampa, ID) has become a strategic partner of Extreme Networks (Cupertino, CA), whose products include LAN switches for Gigabit Ethernet. MCMS will provide services including materials management, board assembly, box build, and end order fulfillment. What’s more, MCMS has landed an even newer program with Extreme. “We have been given the nod on a new program where we will be sole source,” says Robert Subia, MCMS chairman, CEO and president….PulsePoint Communications (Carpinteria, CA), a developer of messaging solutions for public network operators, has chosen Solectron to manufacture the PulsePoint Enhanced Application Platform….Dovatron International (Boulder, CO), a unit of The DII Group, will build RF modems for Belgium-based Option International as well as graphics accelerator cards for TechWorks, a UK firm….LaBarge (St. Louis, MO), a publicly traded CM, will serve as exclusive manufacturer of electronic systems from its joint venture with Global Research Systems (Rome, GA). The two companies formed this 50-50 joint venture to develop and market systems that notify passengers in advance of a vehicle’s arrival….EFTC reports two new customers, Kodak and Octagon Systems, should add about $10 million to next year’s sales.

NatSteel Electronics Expanding in Asia

Despite the economic turmoil in Asia, “our facilities are pretty fully loaded [there],” reports Cliff Chu, the new COO of NatSteel Electronics (Singapore). NEL is adding 80,000 ft2 to its Penang, Malaysia, facility, as well as 40,000 ft2 to its Batam, Indonesia, plant. Prior to expansion, the Malaysia and Indonesia plants had been operating with 174,000 ft2 and about 140,000 ft2 respectively.

“On top of that, we’re also increasing engineering services,” Chu adds. NEL is investing more in test development engineering, PCB design and advanced manufacturing engineering.

In addition, NEL is beefing up its management team. “We’re in the process of hiring some well-known industry people,” says Chu. He explains, “The company is young. We have a very lean management team. We’re in the process of reinforcing in that area.”

After holding several senior positions within NEL, Chu was recently named COO, a position that had been vacated earlier. All of NEL’s operations now report to Chu.

Chu remains upbeat about the Asian crisis. As a result of the crisis, he see more OEMs questioning whether to continue in manufacturing. “Actually, there are more opportunities for us,” he declares.

For the first half of the year, NEL earned a net profit of S$26.7 million ($15.4 million) on sales of S$859.9 million ($494.2 million). Compared with a year earlier, sales were up 72% in local currency, but in U.S. dollars the increase was about 48%, according to Merrill Lynch (Singapore). Net profit in Singapore dollars jumped 143% from a year ago.

In other news, NEL intends to sell its interest in Multiwave Innovation Pte. Ltd., a developer of multimedia and communications products. NEL says Multiwave is not as good a fit as it might have been.

More expansions…Victron, an MMI Top 50 EMS provider, has moved to a 130,000-ft2 facility in Fremont, CA. The new facility, which is 20,000 ft2 larger than previous facilities, combines all operations under one roof and enlarges Victron’s manufacturing space to 110,000 ft2. The provider employs about 450 people….GET Manufacturing (Mountain View, CA and Hong Kong), also on the Top 50 list, has broken ground on a new facility in Tijuana, Mexico. The project will add over 60,000 ft2 and more than double GET’s manufacturing capacity in Tijuana. Final occupancy is expected by year end, and product shipments are due to start in January 1999. “Less than a year after establishing a presence in Mexico, we are rapidly outgrowing the original space acquired from Proxima Corporation last September,” states Roger Nordby, GET president and CEO. As the new facility ramps up, GET will transition out of the existing plant. GET expects to continue adding capacity in the new Tijuana location, while pursuing growth opportunities elsewhere in North America and Asia. The company had originally intended to lease a building Tijuana (May, p. 9)….NuVisions Manufacturing, the contract manufacturing subsidiary of distributor NuHorizons Electronics, recently completed a 25,000-ft2 addition in Springfield, MA. This expansion brings NuVisions’ facility space to 41,000 ft2 and triples production space. The CM is also adding an SMT line based on Zevatech placement equipment as well as other equipment including an HP 3070 in-circuit tester. NuVisions reports an annual growth rate of 50% since 1994 and projects this rate will continue, with annual sales targeted for $35 million by the year 2000….LaBarge (St. Louis, MO) has leased a 30,000-ft2 building in Houston, TX, which will more than double the size of its production space there. The Houston operation, which manufactures complex electronic devices and systems as well as custom hybrid circuits, primarily supports the oil and gas industry. The new building will also serve as the operation’s headquarters.

Enhancing services…Elamex S.A. de C.V. has opened regional sales offices in Hamburg, NY; Winona, MN; and Kansas City, MO. Previously, all sales personnel were based in the company’s Juarez, Mexico, headquarters. “We feel that deploying our sales force regionally within the U.S. is the best way to provide local support without significantly increasing our overhead structure. We have selected locations in close proximity to both our existing customer base and large markets for our services,” states Susan Mucha, VP of sales and marketing….Through a new global procurement process, Kimball Electronics Group (Jasper, IN) has proposed saving three customers a total of over $4 million in printed circuits and other components. The process is being implemented through facilities in Burbank, CA; Jasper, IN; Reynosa, Mexico; and Mantes La Jolie, France. Meanwhile, Kimball has bought new Fuji equipment for an additional production cell in its Jasper facility. One machine, a CP643E for high-speed placement of small components, is among the first of its type to enter the U.S., according to Kimball. Also included were a large-componet placer and a stencil printer .

Start-Up To Mine Entertainment Industry

In Chatsworth, CA, Provision Entertainment has started contract manufacturing operations with a focus on serving multimedia entertainment companies.

Provision Entertainment may well be the only CM specializing in the entertainment industry. “My last two years’ worth of market research says the same thing,” remarks Curt Thornton, Provision’s founder, president and CEO.

Founded about three months ago, the start-up offers services including contract assembly, systems integration, project management and creative design. Contract assembly covers electronics and electromechanical work. Operations take place in a facility with just under 5,000 ft2.

While Provision has started out doing subassembly, Thornton says the company has won some system build work for simulation products. The company is also looking at business outside of its entertainment niche. “We have some proposals on the table right now outside of the entertainment industry [for] telecommunications and the computer industry,” he points out.

Before Provision, Thornton was VP of Iwerks Entertainment, a creator of movie-based attractions for theme parks, shopping malls and museums. He has also held senior management positions at high-tech firms including Northern Telecom and Tandon Computers.

IPO updates…To cover over-allotments, lead underwriters for the IPO of Celestica (Toronto, Canada) have purchased an extra 3.09 million shares amounting to about $54.1 million in proceeds (July, p. 9). Total proceeds from the IPO came to $414.6 million….Primetech Electronics (Dollard-des-Ormeaux, Quebec, Canada) has completed its IPO of 4 million shares at $10.50 Cdn per share, of which 3 million shares were issued by the company and 1 million were sold by shareholders (July, p. 9). Primetech netted about $28.3 million Cdn.

Other financial news in the EMS industry…The New York Stock Exchange has informed EA Industries (West Long Branch, NJ) that delisting procedures have been initiated. The company says it will most likely trade on the OTC Bulletin Board. “The action by the NYSE has no direct bearing on our plans to grow our business and return the company to profitability,” states Frank Brandenberg, president and CEO of EA. Through a convertible debenture offering, the company recently received $4 million in additional financing. “This funding is expected to be sufficient to meet the company’s cash needs until EA’s expected return to profitability in the fourth quarter,” says Brandenberg. EA had not met NYSE listing criteria for a number of years….Distributor Bell Microproducts (San Jose, CA) reported that sales for its Quadrus manufacturing divi-sion climbed from $12.6 million in Q1 to $20.3 million in Q2. The Quadrus customer base is being rebuilt after the loss of two major customers last year. The division showed a pretax loss of $1.1 million in Q2….For Q2, distributor Reptron reported that its K-Byte Manufacturing division (Tampa, FL) produced gross profit of $3.1 million on sales of $32.7 million. Sales were up 9% from the prior Q2, while gross profit was down by 40%….Contract manufacturing from continuing operations generated revenue of $14.2 million Cdn and gross margin of 1.4% for Sidus Systems (Toronto, Canada) in its Q2 ended May 31. Contract manufacturing revenue tripled from Q1, according to Sidus, as new business ramped up including a contract with a U.S. direct marketing company. In May, the company announced the closure of its build-to-order manufacturing business in Austin, TX (May, p. 9)….According to Bloomberg News, real estate losses caused CM Eltech Electronics Ltd. (Singapore) to put aside S$25.9 million in May.

OEM in contract manufacturing …Cerberus Pyrotronics, an OEM known for fire protection systems, has moved its New Jersey manufacturing operation from Cedar Knolls to Florham Park about seven miles away, where the company has combined operations under a single roof. “Contract manufacturing is approaching 15% of the present manufacturing volume. Our goal is to grow it up to 30%,” says George Snedecor, manager of contract manufacturing sales. Manufacturing, both internal and external, and materials take up an estimated 60,000 ft2 within a newly enlarged 174,000-ft2 building.

EMS management move…Celestica has appointed R. Thomas Tropea as senior VP of marketing and business development. A veteran of Northern Telecom, Tropea most recently served as its VP of sales for Central and Atlantic Canada.

MMI Index of 21 public EMS companies in cooperation with SG Cowen Securities
Aug. 7 — 101.06
July 17 — 111.10
Change: -9.0%

Copyright 1998 JBT Communications

MMI July 1998

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