Vol. 9, No. 3: March 1999

Table of Contents

Cover story

MMI Top 50 Chalks Up Nearly 28% Growth

The MMI Top 50 List of the Largest EMS Providers in 1998


Facilities Continue to Sprout in Cent. Europe

Solectron Expands on Two Levels: Facilities and Services

Celestica To Move NH Operations

Saturn Adds 140,000 ft2 in Mexico

More Emphasis on RF

Quiet deals

Midwestern Adds NRT

Other deals done

Plexus To Acquire Medical CM

EFTC To Gain Honeywell Operation

New programs

New design initiatives

EMS company news

Some bad news

Some financial results

Other financial news

Management changes

More managers in transition.

EMS industry suppliers making news

Last Word

Consolidation, Yes…But How?


MMI Top 50 Chalks Up Nearly 28% Growth

Sales Top $33 Billion As Nine New Players Join List

Despite a wild ride at times, 1998 turned out to be a year in which forecasts can come true. As a group, the largest EMS providers are supposed to be growing faster than the EMS industry overall. And so they did in 1998, according to results from the annual MMI Top 50 list of the world’s largest EMS providers for 1998. Top 50 rankings appear below.

Last year, collective growth for the MMI Top 50 measured 27.8%, based on 48 companies that provided sales figures for 1998 and 1997. So if one accepts the typical forecast of 25% for industry growth, then the Top 50 exceeded that baseline by almost three percent. This result follows 1997’s subpar performance where Top 50 growth dipped three points below the baseline.

What’s more, growth rates went still higher in the upper brackets of the 1998 Top 50. For 24 out of the first 25 EMS companies, the aggregate growth rate rose to 30.5%. Atop the standings, the five largest providers combined for a year-over-year increase of 33.9%.

Still, there were more Top 50 sales declines than one would like to see in an industry with prospects for prolonged growth. In 1998, nine Top 50 companies reported a decrease in sales from the year before, and a tenth, Venture Manufacturing, ended up with a sales decline after currency conversion.

Together, the MMI Top 50 accounted for at least $33.305 billion in sales for 1998. Compared with the prior year’s total of $26.099 billion representing a somewhat different group, the 1998 Top 50 captured 27.6% more sales. Despite additions to the 1998 list, this increase correlates with the above growth rate of 27.8% for 1998’s Top 50 companies .

Using Technology Forecasters’ estimate of $90 billion for the worldwide EMS market in 1998, the Top 50’s market share came to 37% last year, up slightly from a share of 36% in 1997.

OEMs who focus on the Top 50’s upper echelon will find one new member of the top five and two additions to the top 10, as ranked by EMS sales for calendar 1998. While SCI Systems, Solectron and Celestica remained one, two and three respectively in 1998, as in 1997, Flextronics International moved up one spot to fourth largest provider. Rounding out the top five was NatSteel Electronics Ltd., which edged out Jabil Circuit for the fifth position. Two new members of the 1998 top ten were Sanmina at number nine and Taiwan’s Universal Scientific Industrial Co. ranked tenth. The cut-offs for making both the top 10 and top 5 have increased every year since 1992 (see chart below).

Although SCI maintained its long-time hold on the number-one spot, the gap between it and number-two Solectron shrunk from $2.366 billion in 1997 to $486 million in 1998. That difference still seems like a lot, but it only represents 8% of Solectron’s sales from December 1997 to November 1998.

Changes also occurred in the Top 50, as nine companies were added for 1998. They were (in alphabetical order): Aimtronics, C-MAC Electronic Systems, KYREL EMS, Lexmark Electronics, Ocean Information Holdings Ltd., Pemstar, Sparton Corp., Sumitronics-Asia Group and WKK Technology Ltd. KYREL EMS and WKK are returnees from the 1996 list. Of the nine additions, six are based outside the U.S., indicating the international makeup of the MMI Top 50.

Companies dropped out of the Top 50 primarily due to consolidation or insufficient revenue. Four EMS operations on the 1997 list were acquired, while three others could not meet the sales minimum for 1998. In addition, one company failed to respond, and another was reclassified.

To make the 1998 Top 50, companies needed at least $100 million in EMS sales for the year. That’s up from 1997’s floor of $95 million, yet matches the minimum of $100 million set in 1996. Just missing the cut for 1998 were LaBarge at $99.3 million in EMS sales and Harvard Custom Manufacturing at $94.0 million.

A total of 77 companies were contacted as potential candidates for the MMI Top 50. Companies were asked to report calendar year sales in EMS, while excluding direct sales of any bare boards, cable assemblies and other such materials as well as sales from units in non-EMS businesses. In addition, MMI decided that electromechanical contract manufacturers within the outsourcing space would be considered apart from the Top 50, at least for now, and treated separately.

Of the four basic ratios that can be calculated from Top 50 data, three came in close to 1997 values. For 1998, 47 companies generated an average of $181,400 in revenue per employee. That’s up just 2% from $177,800 computed for 44 companies in 1997, but well below the 1996 ratio of $206,000 per employee calculated for 42 providers.

Following declines from 1996 to 1997, revenue per ft2 and revenue per plant held steady in 1998. Based on 47 providers in 1998, revenue per ft2 averaged $746 versus $745 produced by 43 companies the year before. Likewise, revenue per plant was $95.5 million across 48 companies in 1998, compared with an almost identical $95.6 million per plant generated by 45 providers in 1997.

The one anomaly in the data concerns box-build sales, which were reported as a percentage by 44 providers in 1998. Of their combined sales, 30.6% came from box build, down from 33.9% for 38 companies in 1997. The reasons for this decline are unclear but may have to do with differences among the two groups being counted.

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Facilities Continue to Sprout in Central Europe

AVEX and Flextronics Announce Plants

AVEX Electronics (Huntsville, AL) and Flextronics International (San Jose, CA) are adding two more facilities to the recent wave of new plants in Central Europe. For Flextronics, its new building represents an expansion of an already sizable operation in Hungary. AVEX, on the other hand, is a newcomer there.

In Zalaegerszeg, Hungary, Flextronics is erecting the first building in what will be the company’s second industrial park in that country. The company plans to officially open the 120,000-ft2 building on April 27-29.

The town of Zalaegerszeg, however, is not a new location for Flextronics. It inherited a 9000-m2 (96,900-ft2) plant there when it acquired Neutronics in 1997. That acquisition also brought Flextronics two other sites in Hungary, including the location of its first Central European industrial park in the town of Sarvar.

The new park serves as an extension of Flextronics’ well-known campus strategy, whereby space is provided for suppliers that colocate on site. What’s more, the company is planning yet another industrial park, to be located in Brazil. Flextronics expects to start construction on that park during Q2. The Brazilian campus would become Flextronics’ fifth industrial park worldwide.

In addition, Flextronics plans to add a building for PCBA and systems build on its Doumen, China, campus now at 750,000 ft2.

As for AVEX, the provider is opening a new low-cost manufacturing plant in Csongrad, Hungary. Earlier, AVEX told MMI that it had planned to start up a leased facility in Hungary and have it operational in February 1999 (Dec.’98, p. 1).

AVEX also intends to double the size of its Guadalajara, Mexico, operation by midyear. The company says it must operate in low-cost sites to meet customers’ needs. These projects in Mexico and Hungary form part of a strategic manufacturing plan to boost AVEX’s growth above the industry norms.

Solectron Expands on Two Levels: Facilities and Services

Solectron (Milpitas, CA) continues to expand both in brick and mortar and services. The provider recently outlined plans for two more capacity expansion projects in North America in addition to opening the first stage of its new campus in Brazil. Not only that, Solectron just unveiled a new division dedicated to after-sales service and support.

The company has opened the 230,000-ft2 first phase of a planned 327,000-ft2 facility in Sao Jose dos Campos, Brazil. Plans for this facility were reported last year (May ’98, p. 7). After more than doubling Brazilian employment to 1044 people in nine months, the company expects to hire another 500 people by the year 2000. Solectron’s original site in Brazil, acquired as a PCBA operation from Ericsson in 1997, recently added NPI services, full systems build and a depot repair center.

In North America, the EMS provider plans to build a systems design and manufacturing complex in Columbia, SC, consisting of two 135,000-ft2 manufacturing buildings and a 40,000-ft2 R&D facility on 61 acres. Adjacent to the Metropolitan Airport in Lexington County, the new site is a mile from Solectron’s current location. The company expects to break ground this summer on the complex, which is due for completion in April 2000. At that time, Solectron will move out of its existing 207,000-ft2 facility.

The campus has the potential to grow to 580,000 ft2 in five years. Over that period, Solectron expects to more than double its Columbia work force, which now stands at about 470 people. Solectron came to South Carolina through its 1998 acquisition of NCR manufacturing activities. Offering a full range of systems design and manufacturing services, the current operation there serves customers in the PC, workstation, server and networking industries.

This month Solectron reported that it has completed the integration of the former NCR facilities in Georgia, South Carolina and Ireland into Solectron’s Systems Engineering and Services division.

Solectron will also add 126,000 ft2 to its operation in Charlotte, NC, where it has integrated IBM’s former Electronic Card Assembly and Test facility with Solectron’s other activities there. According to Solectron, integration in Charlotte took less than six months.

To add space, the provider will lease a single building from IBM near the former ECAT facility in University Research Park. With the new space, the Charlotte operation will total 835,000 ft2, making it Solectron’s third largest complex, behind California and Texas. In addition to serving as Solectron’s East Coast hub for PCB assembly, Charlotte will also house the company’s East Coast PCB technology center and repair depot.

“We can ensure a smooth transition of the operations because we retain more than 85% of the associates who come to Solectron as the result of our acquisitions,” states Bob Bradshaw, president of North Carolina operations.

Launches Global Repair and End-of-Life Services

Solectron has introduced its global Support Services division to manage after-sales activities for an OEM’s existing product line. These activities include product repair and maintenance, logistics and parts management, engineering change management, returns administration, product upgrade and refurbishment, failure analysis, warranty administration, end-of-life manufacturing, warehousing and worldwide distribution. While all of Solectron’s sites can provide support services, dedicated depot repair centers are located in California, Texas, Brazil and France.

The provider is promoting its ability to support products where they are sold as opposed to where they are manufactured.

To head up the new division, Solectron has named William Mitchell as corporate VP and president of Support Services. He joins Solectron from Sequel, where he was CEO. At Sequel, Mitchell was charged with converting the disk-drive manufacturer to an outsourcing service.

“Support services is an untapped market in the electronics manufacturing services industry, and one where we see excellent growth potential,” states Mitchell.

That potential can be seen in a newly expanded partnership with Mitsubishi Wireless Communications. After taking over North American manufacturing of Mitsubishi cell phone products last year, Solectron will now handle depot repair services for Mitsubishi cell phones sold in North America. Solectron will integrate this business into its existing operation in Braselton, GA, before moving that operation in May to a campus being built in Suwanee, GA.

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Celestica To Move NH Operations

MMI has learned that Celestica (Toronto, Canada) will relocate its Exeter, NH, operations to Pease International Tradeport in Portsmouth, NH, when a new 200,000-ft2 building there is finished in Q1 2000. The company expects to add about 150 new jobs.

The new Portsmouth facility will become Celestica’s hub for systems integration, build to order, and configure to order in North America.

Formerly Pease Air Force Base, the Tradeport contains its own airport. So logistics played a role in this move. Also, the new facility will be more optimized for manufacturing than the current Exeter facility, which Celestica took over from Hewlett-Packard.

Celestica subleases a portion of the 250,000-ft2 Exeter facility to Tyco Submarine Systems, which will eventually occupy the entire space.

Saturn Adds 140,000 ft2 in Mexico

Top-tier providers aren’t the only ones expanding in Mexico. Saturn Electronics & Engineering (Auburn Hills, MI) has created new floor space at two locations in Mexico.

In Monterrey, the company has opened a 70,000-ft2 facility to support complex PCBA and box-build requirements. It is located in the Stiva Industrial Park, three minutes from the airport. Saturn has the option to expand the building by an additional 70,000 ft2.

The provider has also added 70,000 ft2 to its Juarez facility, which ends up with a total of 130,000 ft2. Located 10 minutes from the El Paso, TX, airport, this plant is designed to meet complex manufacturing requirements for box build and wire and cable harness assemblies.

More Emphasis on RF

Although RF (radio frequency) technology has been around longer than digital, RF is hot, at least with some EMS providers. Flextronics and Sanmina (San Jose, CA) are good examples.

Flextronics has opened an RF Design Center within its Product Introduction Center in San Jose, CA. The new center will provide a high level of expertise in the design, devel-opment and characterization of RF and microwave components, circuits and systems. Heading up the center as director of RF engineering and design is Dr. Yongnan Xuan, who holds a Ph.D. in microwave engineering.

“We foresee a significant increase in demand for RF products over the next few years,” states Nicholas Brathwaite, VP of advanced technology and engineering services. “The past year we have added a number of high-profile, high-technology companies who have required RF design and development expertise. We will continue to expand our RF engineering services to meet the growing demands of our customers.”

Then there’s Sanmina. The EMS provider says it is “significantly increasing” manufacturing and test capabilities in RF technologies through its newly integrated Canadian plant, acquired in November 1998 from the Wireless Access Division of Harris Corp. That plant is located in Calgary within the province of Alberta.

“Over the last several years, we have focused on building and expanding our wireless capabilities, which represent a key element in our growth strategy, and the acquisition of the Calgary facility supports that strategic thrust,” states Hari Pillai, senior VP of EMS operations. “During this time, we have attracted leading-edge customers, developed our technical strengths, and manufactured and tested a diverse and complex range of products in this area.” He says the Harris acquisition will enable Sanmina “to accelerate our growth in this key segment of the communications industry.”

By integrating the Calgary facility into Sanmina’s RF operations, the company now offers RF customers a full range of services including design activities such as model, prototype and test development and vertically integrated manufacturing.

Quiet deals…The Harris facility acquisition was one of four transactions Sanmina made in the quarter ended Jan. 2 apparently without issuing any public statements. Two of those deals have yet to reach the public eye. One transaction that was identified in Sanmina’s SEC form 10Q is the acquisition of Telo Electronics (San Jose, CA), which took place in December 1998. Sanmina described the other three transactions as smaller compared with the Telo deal. Telo basically does medical contract manufacturing, which “is exactly why we wanted them,” says Bern Whitney, Sanmina’s CFO. Sanmina acquired Telo by exchanging shares of Sanmina stock for all of Telo’s stock. According to SEC form S-3, S. Zafar Jafri obtained 950,000 shares of Sanmina stock as a result of this deal. Whitney says the two unidentified transactions reflect a strategy to pursue the high-end, precision assembly segment of the EMS space including semiconductor capital equipment. In other news, Sanmina is shutting down its board fabrication plant in Peterborough, UK. Whitney describes this plant, which came with the acquisition of Elexsys, as “pretty small.” He says expanding the plant would cost too much versus acquiring a facility either there or on the Continent.

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Midwestern Adds NRT

Midwestern Electronics, a privately-held contract manufacturer based in Olathe, KS, has acquired another CM, NRT Contract Manufacturing of Tallahassee, FL. No terms were given. Although the stock and cash transaction was effective Dec. 31, 1998, it closed on Mar. 8, 1999.

NRT, which employs 179 people at its Tallahassee facility of about 44,000 ft2, became a wholly-owned subsidiary of Midwestern. The combined oper-ation now has about 184,000 ft2, 16 SMT lines and more than 600 employees. Midwestern’s other sites consist of two facilities in the Kansas City, KS, area as well as North Iowa Electronics in Garner, IA, and Skyline Electronics in Colorado Springs, CO (Aug.’98, p. 3-4).

The NRT deal gives Midwestern a regional presence in Florida. “This partnership extends our efforts to create a network of low- to medium-volume electronic manufacturing operations that focus on high-mix, high-complexity projects in regional markets across North America,” states Dave Anderson, president of Mid-western.

Midwestern assigns geographic limits to the operations it assembles. “We defined the extent of our geography roughly in terms of one day’s drive,” Anderson tells MMI. “That continues to be true.”

The company wants to remain decentralized, but operating under a common vision and philosophy. “I don’t think a corporate superstructure can be supported in the margins that the industry will have,” says Anderson. Midwestern’s approach requires a good underpinning with information technology and good supply-chain relationships, he adds.

Prior to the NRT deal, Midwestern had an consignment orientation. NRT, however, is primarily a turnkey operation. As a result of this deal, says Anderson, “the component of consignment work in the total mix is declining significantly.”

Midwestern’s Olathe, KS, operation will be moving in about a month to a facility with 10,000 ft2 of additional space, while plans are to relocate the Colorado Springs unit during the summer. That move will likely add 25,000 ft2.

Other deals done…The Dii Group (Niwot, CO) has sold its TTI Testron subsidiary, which makes test fixtures and interconnect devices, to Everett Charles Technologies (Pomona, CA), a subsidiary of Dover Corp. Dii is divesting itself of noncore businesses to focus on core competencies in design and semiconductor services, PCB fabrication, and systems assembly and distribution. In addition, the company has received a letter of intent for the sale of its IRI International unit, a stencil supplier. Other noncore businesses are also on the block. …Benchmark Electronics (Angleton, TX) has closed the deal to purchase assets from Stratus Computer Ireland, a subsidiary of Ascend Communications (Feb., p. 3). According to SEC form 8K, the EMS provider paid $48 million representing book value of the assets and has hired 260 Stratus employees. As a result, system integration work will move from the Stratus operation in Dublin, Ireland, to Benchmark’s facility nearby. Financing for the purchase was provided by a group of banks, which has set up a new $105-million credit facility for Benchmark. That facility consists of a $40-million term loan and a $65-million revolving credit line….Flextronics has acquired an additional 50% of FICO, a Chinese joint venture supplier of plastics, bringing Flextronics’ ownership share to 90%. “This is the only region where we don’t own 100% of our plastics capability,” chairman and CEO Michael Marks told stockholders. Flextronics intends to further integrate its three plastics operations as it expands engineering activities on the mechanical side. Also, the company has acquired unidentifed assets in Hong Hong to expand its PCB fabrication business….LaBarge (St. Louis, MO), an AMEX-listed EMS provider, has acquired Open Cellular Systems, a St. Louis-based supplier of cellular and network communication system products and Internet services for remote monitoring and control. This deal is the latest step in LaBarge’s long-term strategy to expand upon its core design and manufacturing business by adding more proprietary capabilities, technologies and products. LaBarge paid $5.8 million in subordinated convertible notes to increase its equity stake in OCS from 10% to 100%.

Plexus To Acquire Medical CM

Plexus Corp. (Neenah, WI) has entered into a merger agreement to acquire the outstanding common stock of SeaMED Corp. (Redmond, WA), which specializes in the design and manufacture of instruments for medical technology companies.

Each share of SeaMED stock will be exchanged for 0.4 share of Plexus stock, subject to a minimum value of $12 per SeaMED share and a maximum of $15. At press time, the most recent number MMI could find for SeaMED shares outstanding was 5.7 million as of Sept. 30, 1998. Based on that number, the upper limit on the deal’s value would be about $85.5 million.

This deal “clearly will place us as the largest medical outsourcer [provider],” says John Nussbaum, president and COO of Plexus. “It gives us a $110-million run rate on medical. That’s significant.”

“It opens up other opportunities for large programs as well with larger medical companies,” adds Nussbaum. “It will give us a lot more critical mass.”

Medical will be Plexus’ largest sector, increasing from 24% of sales to 33% after the transaction.

Nussbaum says the number he hears most often for the size of the medical technology market is $70 billion, which includes $9 to $10 billion for the heart-related implantable market. How much of the total is outsourced? “A small percentage,” Nussbaum replies.

For the first six months ended Dec. 31, 1998, SeaMED reported revenue of $38.3 million, up from $32.3 million for the same period a year earlier. Net income for the first six months of fiscal 1999 was $2.0 million, or $0.36 per share, compared with $1.9 million, or $0.33 per share, for the first six months of fiscal 1998. The company expects fiscal Q3 revenue of about $16.0 million and EPS of between $0.00 and $0.03. Slower than expected revenue growth, says SeaMED, resulted primarily from delays and cancellations of some projects during the quarter.

The two companies share not only a mutual interest in the medical technology market, but also an emphasis on engineering services. “We’re putting together really two engineering powerhouse companies,” declares Nussbaum. The merger will increase Plexus’ engineering staff by 50% to more than 300. Plexus says the merger will enhance its ability to design complex products.

Though medical is SeaMED’s specialty, the company’s largest customer is Coinstar, for which SeaMED designed a complex coin counting machine. With the merger, SeaMED is expected to look for more opportunities like the Coinstar machine.

Subject to several conditions, including approval by SeaMED’s shareholders and a waiting period under federal law, the deal is expected to close late in Plexus’ fiscal Q3 or early in its Q4. The merger will be accounted for as a pooling of interests.

SeaMED employs about 480 people and has 193,000 ft2 in available facilities

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EFTC To Gain Honeywell Operation

EFTC (Denver, CO) has signed a letter of intent to acquire the card assembly operation at Honeywell’s Commercial Aviation Systems Bell Road facility in Phoenix, AZ, and to enter into a long-term supply agreement with Honeywell.

The operation would be relocated to new facility in Phoenix.

Negotiations leading to a definitive agreement are not yet completed.

New programs…SCI Systems (Huntsville, AL) has started building inkjet printers for Hewlett-Packard. Manufacturing is taking place at SCI’s new plant near Guadalajara, Mexico. The company will produce subassemblies and perform finished product assembly and test….IEC Electronics (Newark, NY) has landed a contract from GenRad (Westford, MA) to manufacture GenRad’s Worldwide Diagnostic System for Ford Motor Co. One or more units will be manufactured for each of about 8400 dealers in the U.S. and Europe. IEC’s plants in Newark, NY, and Longford, Ireland, will handle production, the majority of which will be completed by Sept. 30. The company believes its expansion into Europe and increased investment in engineering and prototype services enabled it to win the program. Also, based on a letter of intent from Unidyn Corp. (Phoenix, AZ), IEC will conduct alpha and beta testing of a new product for the vibration test market. Called the Sterling System, this product performs QA testing of boards and other electronic products, and initial testing reportedly indicates near 100% detection reliability with no slowdown in production….Copper Mountain Networks (Palo Alto, CA), a DSL (digital subscriber line) networking company, has selected Flextronics as Copper Mountain’s sole source of contract manufacturing. While Copper Mountain intends to keep manufacturing of new products in house, Flextronics will build the company’s mature product lines requiring volume production. Copper Mountain will initially outsource volume production of its CopperRocket 201 customer premise equipment and its CopperEdge 200 access concentrator. The company plans to use the Product Introduction Center that Flextronics is opening near Copper Mountain’s San Diego office….PulsePoint Communications (Carpinteria, CA) is ready to meet global demand for its PulsePoint Enhanced Application Platform with turnkey manufacturing from Solectron. This carrier-grade product for the telecom industry is a standards-based, open-system platform based on Microsoft Windows NT….Provision Entertainment (Chatsworth, CA), a CM specializing in the entertainment industry, will serves as exclusive manufacturing partner for Global VR, a virtual reality company in Silicon Valley….Pen Interconnect has received an initial order to manufacture Audio File and Media Data Loader systems for Transdigital Communications (Brea, CA). Transdigital’s main business is designing and installing digital video and audio servers for airlines and cruise lines. The two companies have signed a letter of intent to merge (Dec.’98, p. 6). After selling off two money-losing divisions, Pen says it is focusing efforts on the merger and expansion of its contract manufacturing services business. The company recently moved its headquarters from Salt Lake City, UT, to Irvine, CA….CMA International, a medical CM based in Chapel Hill, NC, will manufacture Natus Medical’s instrument to detect hearing impairment in newborn infants. The Natus (San Carlos, CA) instrument will be the first product to be manufactured in CMA’s new 15,000 ft2 facility in West Belfast, Northern Ireland.

New design initiatives…Hi-Tech Manufacturing (Thornton, CO) has formed a New Product Development Group to meet the development and design needs of its customers. NPD Group services are listed as time-to-market analysis, system configuration and packaging, thermal analysis at the board and system level, PCB design and layout, DFM/DFT analysis, quick-turn fabrication and assembly, and cost reduction programs. The group has established a relationship with Dynamic Details, a PCB fabricator linked to HTM through common ownership, in order to offer system physical design, board layout, and quick-turn prototypes. HTM says forming the new group allows it to engage with customers at product conception….Phoenix International (Fargo, ND) has introduced design validation testing services for ruggedized electronics. Compliance testing can be performed to numerous standards including ASAE EP455, SAE J1455/J1113, and ISO 14982. Providing electrical, environmental and EMC testing, design validation services can employ environmental chambers, RF testing, electrical fast transient testers, particle impact and dust testers, and data acquisition systems. Phoenix has extensive experience in testing for customers in the agricultural, off-road, heavy-duty truck and construction industries.

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EMS company news…PAGG Corp. (Milford, MA) was recently awarded contracts from a computer peripheral company and a telecom switch company. “PAGG Corporation had a banner year in 1998 with the addition of seven new customers,” says Arthur Hook, director of business development. “As 1999 unfolds, we are expecting tremendous growth from those new partnerships and are making strategic investments in our operation to manage that growth efficiently.” For example, the provider has added BGA, X-ray inspection, and rework equipment to its operation. What’s more, PAGG has engaged Crowley Associates, a rep firm, to enhance sales coverage in New England, metro New York, and the Mid-Atlantic states….K*TEC Electronics (Houston, TX) has earned BABT certification and has been recommended for certification to the automotive standard QS 9000….The Hermosillo, Mexico, facility of CMC Industries (Santa Clara, CA) and the Merrifield, MN, division of Nortech Systems (Wayzata, MN) have been certified to ISO 9002.

Some bad news…Technology Manufacturing & Design (Georgetown, TX) was named as the debtor in a chapter 11 bankruptcy case recently filed in U.S. Bankruptcy Court. The contract manufacturer remains in operation….Jurong Hi-Tech, a Singapore-based CM, is closing its Milpitas, CA, facility.

Some financial results…For the fiscal Q2 ended Feb. 26, Solectron posted sales of $1.91 billion, up 61% from the prior Q2. Net income for the quarter increased 34% from the year-earlier period to $65.5 million. Q2 diluted EPS came in at $0.26 versus $0.20 for Q2 fiscal 1998. Six-month revenues rose 66% year-over-year to $3.85 billion, while net income was up 38% to $129.4 million. Solectron set Mar. 3 as the redemption date for about $230 million in convertible subordinated notes….NatSteel Electronics Ltd. (Singapore) reported sales doubled from S$1.23 billion in 1997 to S$2.46 billion in 1998, while net profit after tax went up by 90% to S$68.6 million. On a U.S.-dollar basis, the percentage increase in sales was not quite as high (see the MMI Top 50, p. 2). According to Bloomberg News, Apple accounted for 37% of sales….ACT Manufacturing (Hudson, MA) showed Q4 1998 net income of $1.5 million versus a net loss of $10.4 million a year earlier. Q4 sales increased 28% to $76.5 million. Net income for 1998 was $1.3 million compared with a net loss of $4.0 million in 1997. Gross margin rose to 9.7% in Q4 from 7.4% in Q3….For fiscal Q2 ended Jan. 31, sales of CMC Industries (Santa Clara, CA) decreased to $74.6 million from $88.4 million in the year-earlier quarter. Net income was $44,000, compared with $1.2 million in the prior Q2. The company was pleased to return to profitability in the quarter. Sales for Q2 and the first half of fiscal 1999 were lower due to an “insourcing” decision made by a box-build customer in fiscal 1998….Primetech Electronics (Montreal, Canada) posted sales of Cdn$22.6 million for its fiscal Q1 ended Dec. 31, 1998, compared with Cdn$22.3 million in the year-earlier quarter. Net income from continuing operations amounted to Cdn$2.5 million, down by Cdn$0.1 million from a year earlier. The provider had to offset lost revenue from a peripherals program that represented 24% of sales in Q1 fiscal 1998 and ended in March 1998. Primetech is seeing a high level of new product introductions, with about 80 designs planned for fiscal Q2 versus 54 new designs produced in Q1. In contrast, the company had 26 new products going through preproduction in the first half of fiscal 1998….Bell Microproducts’ Quadrus Manufacturing division (San Jose, CA), which participated in the MMI Top 50 survey, reports EMS sales increased 18% from $73 million in 1997 to $87 million in 1998. Although Quadrus experienced a Q4 and full-year operating loss, during the year it reduced operating expenses as a percentage of sales, improved yields and added new customers. Among Quadrus’ 24 customers are Cisco Systems, Lucent Technologies, Elec-tronics for Imaging, Avid-Digidesign, and Cabletron-Flowpoint.

Other financial news…Celestica has sold eight million subordinate voting shares to a syndicate at Cdn$42.60 or $28.65 per share. Excluding any overallotments, net proceeds of Cdn$327.2 million or $220.0 million will be used for capital expenditures, working capital and general purposes, including acqui-sitions….Jabil Circuit (St. Petersburg, FL) closed on a public offering, including overallotments, of 12.1 million shares, of which 6.9 million were sold by the company at an offering price of $30 per share (Feb., p. 6-7). Based on that price, gross proceeds for Jabil came to $207 million….MCMS (Nampa, ID) has obtained a five-year, $60-million senior credit facility from PNC Bank, N.A. Replacing a $40-million facility from another source, the new credit line includes a $10-million equipment line and a $50-million revolving credit facility….Nam Tai Electronics (Vancouver, Canada) has raised its annual dividend to $0.32 per share for 1999 from $0.28 for 1998. The company, whose Nasdaq stock symbol has changed from NTAIF to NTAI, has increased its annual dividend for six straight years.

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Management changes…Dr. Saeed Zohouri has taken over as president of Solectron Americas in charge of PCBA-related activities in the Americas. He also retains his title of Chief Technology Officer. Dr. Zohouri succeeds Walt Wilson, who has assumed new duties at Solectron (see Feb., p. 8). Also, Solectron has appointed G. Fred Forsyth to corporate VP and president of Systems Engineering and Services, a newly created position. Forsyth comes to Solectron from Iomega, where he oversaw all aspects of the Iomega Jaz business. And Vincent DePalma has been named VP of technology world-wide….Robert Crandall, a director of Celestica, has been named chairman of the board. He is the former chairman, president and CEO of AMR Corp….Sanmina has appointed Francois LeCain as senior VP and GM of European operations. He will be based in the company’s newly established sales office near Paris, France. Most recently, LeCain served as European director of sales and marketing for Jabil Circuit….Manu-facturers’ Services Ltd. (Concord, MA) has named Ed DeJesus as its first VP of engineering services. An expert in electronic design automation, DeJesus was most recently director of CAD engineering for Digital Equipment’s Network Products division, acquired by Cabletron. He will direct the global expansion of Manufacturers’ Services’ engineering and design offerings and will establish a business unit dedicated to CAE consulting, PCB layout and mechanical design….MCMS has appointed Dennis Rockow, a former VP and GM at AVEX Electronics, as director of North American operations. Before AVEX, his experience includes director and division manager at Solectron. Also, MCMS has hired Kevin Gonor as director of Eastern regional sales in the U.S. Gonor comes from Flextronics where he served as business development director….SCI Systems has named VPs and plant managers for its new plants. In Mexico, Louis Franco and Hector Morales were promoted from SCI’s flagship Guadalajara facility to new plants in Apodaca and Guadalajara respectively. Mike Henry was promoted at Plant 30 in Huntsville, AL, while Jose Luis Cana joined the recently acquired Leganes, Spain, facility. In addition, SCI brought in electronics veteran Daniel Dery as VP in the Personal Computer Division at Plant 3 in Huntsville.

More managers in transition…EFTC has promoted Andy Hatch to VP of operations for its Services group. Mike Thorn has been elevated to site operations director of EFTC’s Memphis facility, while Joe Quinn, former GM of its Rocky Mountain operations, has been named site director of operations in Louisville, KY….XeTel Corp. (Austin, TX) has appointed Daniel Williams to VP of Austin Volume Manufacturing Operations. He served as GM of Austin Volume Manufacturing for over a year. Also, the company has named David Bibeau as GM of Dallas Manufacturing Operations. His background includes senior management positions in manufacturing and engineering at General Signal….GET Manufacturing (Mountain View, CA) has promoted Michael Knaebel to GM of its Silicon Valley Division….Flash Electronics (Fremont, CA) has appointed Edward Hayes to the newly-created position of VP of corporate development with responsibility for sales and marketing as well as strategic activities such as business planning, business development and acquisitions. Before joining Flash, Hayes served on the board of GET Manufacturing. From 1991 to 1995, he was senior VP for worldwide marketing and sales at Solectron….Stephen Fryer, president of Pen Interconnect, has become acting CEO, replacing James Pendleton, the company’s founder, who will take over the Moto-Sat division that Pen divested. …Laughlin-Wilt Group (Beaverton, OR) has promoted Bradley Garrett to VP of operations….SMTEK International (Thousand Oaks, CA) has named Martin Cirrincione as director of materials.

EMS industry suppliers making news…Jabil Circuit will install Digital Buyer software from Digital Market (Sunnyvale, CA) at all of Jabil’s plants worldwide. Also, Kimball Electronics Group (Jasper, IN) has completed installation of Digital Buyer at Kimball’s main facility in Jasper, with a second installation underway at its Reynosa, Mexico, plant. Digital Buyer is an application suite for Internet-based sourcing and procurement….Meanwhile, PolyDyne Development Corp. (Austin, TX) has reported that recent EMSI customers for its QuoteWin 4.0 quoting management software include Celestica, Orient Semiconductor Electronics, OEM Worldwide, SMS Technologies, Teradyne and Plexus. According to PolyDyne, QuoteWin is now used by over 40% of the MMI Top 50 for 1997. The company also sells SupplyWin 3.0 to provide quoting management for suppliers and distributors….Celestica has selected the ICC/GR Software business unit of GenRad (Westford, MA) to provide Shop Floor Data Manager software worldwide. SFDM is a manufacturing execution system….On Flextronics’ Guadalajara, Mexico, campus, sheet metal supplier Bermo (Minneapolis, MN) has completed a 50,000-ft2 facility, while Kent Landsberg, a packaging company, has expanded on site. In addition, Interplex, a precision sheet metal company, has arrived on the campus.

Correction: It is untrue that CBA, Inc. plans to lease 57,000 ft2 of additional space in Youngsville, NC, as was reported in the February issue on p. 6. The EMS company is buying a 57,000-ft2 building, which will give CBA a total of 82,000 ft2 in three facilities by midsummer.

Last Word from John Tuck

Consolidation, Yes…But How?

Meet with anyone involved with the EMS industry, and chances are the discussion will turn to the subject of consolidation. That certainly proved to be the case at a recent luncheon gathering of this writer and three other people who follow the EMS industry. The talk was not whether consolidation would take place, but how. One participant made a strong case for consolidation occurring in the EMS market as it has in other industries. This person used his experience with the automotive industry to make his point. He reminded us that in the automotive industry tier-one suppliers dominate and smaller companies are relegated to the role of subcontractors to the top tier. There was no middle ground in his scenario. Tier-one suppliers win because they possess the necessary scale to support large customers, in this case car companies.

Heads around the table began to nod in agreement. Sure, why not apply the same rationale to the EMS industry. The largest EMS providers grow ever larger because they have the advantages of scale. Small shops stick around to take orders the big providers don’t want. And companies in between are squeezed out.

Taking the role of devil’s advocate, this writer tried to argue for an alternative scenario. Would it not make sense that OEMs with programs in the tens of millions of dollars seek mid-range providers? Such customers might feel that their business would mean more to a medium-sized provider than to a tier-one player. Clearly, such programs represent a much larger share of the midrange provider’s revenue. But the rest of the group did not embrace this argument.

Still, this writer does not believe that the tier-one-takes-all scenario is a foregone conclusion. Lest we forget, the EMS industry is a services business with an large and growing customer base. In contrast, tier-one automotive suppliers serve just a few car companies. So if ten to 20 providers end up with most of the EMS business, they must also take on a large share of the OEM population. Granted, some of that population will come to them naturally as OEMs undergo mergers and acquisitions in consolidating markets. The networking industry is a good example.

OEM consolidation notwithstanding, top-tier providers overall must still take on a lot more customers if these providers are to dominate the industry and at the same time keep up with the pace of outsourcing. So the consolidation process will in part depend on how many customers the top tier is willing to take on. Can they increase their customer load and still provide the requisite service level?

Here’s another question that needs to be answered. Can top-tier providers meet every need of most every OEM? If not, then niches open up for other providers.

So there are some unknowns in the future course of consolidation in the EMS industry. History does not necessarily repeat itself.

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Copyright 1999 JBT Communications

MMI February 1999

MMI April 1999

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