Vol. 9, No. 10: October 1999

Table of Contents

Cover Story

CMs Buying Up Parts of the Supply Chain

Sanmina Continues To Add on the Electromechanical Side

SMTC Buys Enclosure Company

SCI To Make Enclosure Deal

Solectron To Acquire Second Repair Co.

NatSteel Makes Another ODM Move

Celestica Augments Power Business

Market Data

Firms Call For Smaller Market Size

Emerging CMs

New EMS Names Still Appearing

Italian CM Emerges on European Scene

Boundless Launches EMS Subsidiary

Integrex Funded For Contract Mfg.


Acer and Solectron Forge Alliance

ACT Buys GSS/Array Assets

Comtel Acquires 2nd CM in S. California

Puerto Rican CM Adds GTE Unit

MTI Gains Thick-Film Assets from Zenith

More deals done

Pen To Buy Dallas CM

Stanford Telecom Selling Contract Mfg. Unit

NEC Plant For Sale

General DataCom Outsources to MATCO

More new programs

Venture Plans Three Facilities

Facilities opened

Facilities under construction

Facilities Closing

Some financial news

Some EMS company news

Supply-chain appointments

Other people on the move

CMs Buying Up Parts of the Supply Chain

EMS companies are gobbling up more of the supply chain. But not everyone has the same acquisition strategy. That’s because different providers are seeking to integrate the supply chain in different ways.

But this activity didn’t start yesterday. In recent years, some EMS companies have expanded their role on the front end of the supply chain by acquiring prototype and PCB design operations. Lately, though, supply-chain acquisitions are taking new directions, as providers extend their influence along the supply chain.

Each of the following six cases represents an emerging trend in supply-chain acquisitions. The first three involve acquisitions of enclosure operations. Sanmina and SMTC Manufacturing purchased enclosure operations, while SCI Systems has entered into an agreement to make an acquisition of that type. Until recently, the electromechanical side of outsourcing existed in a world largely apart from EMS (June, p. 1). Now several EMS providers are acquiring enclosure operations to integrate the supply of enclosures with box-build activities on the EMS side.

The fourth case shows how a provider can integrate after-sales activities on the back end of the supply chain. As part of a supply-chain strategy to offer a one-stop solution, Solectron has announced its second acquisition of a repair business. For more on this trend, see July, p. 2-3.

In the fifth example, NatSteel Electronics Ltd. intends to take a stake in a second company that will give NEL access to additional ODM (original design manufacturer) capabilities. With ODM capabilities, a provider can effectively take over a product’s entire design cycle. The front end of the chain now belongs to the provider.

The final case illustrates how a provider can build a business supplying products at the subassembly stage of the supply chain. Celestica, which has maintained businesses supplying memory and power products since its inception, has acquired a company for its power systems business. Synergy occurs when a company can provide both subassembly products and manufacturing services to the same OEM. See last month’s cover story for another deal of this type.

Sanmina Continues To Add on the Electromechanical Side

Sanmina (San Jose, CA) is making it clear that electromechanical capabilities belong in its vertical-integration strategy for providing total systems solutions. After winning the right to acquire two electromechanical operations from Nortel Networks in August, Sanmina has just purchased a third operation on the electromechanical side of outsourcing.

Earlier this month, Sanmina acquired the telecom enclosures operation of Devtek Electronic Packaging Systems (DEPS), a unit of Devtek Corp. (Markham, Ont., Canada). The purchase includes manufacturing facilities in Toronto, Canada, and an integration/assembly and distribution plant in Raleigh, NC. This cash deal yielded proceeds of about $26.5 million, subject to final adjustment of intercorporate debt.

DEPS designs and produces engineered custom enclosures for the telecom and networking industries. Nortel is a customer. DEPS’ capabilities include design of electromechanical enclosures, electrical/electronic assembly, and integration and test. In manufacturing, DEPS uses processes such as CNC machining, punching and forming as well as metal joining.

“This transaction strongly complements and strengthens our advanced backplane technology as few companies will be able to provide to the communications industry such a broad spectrum of design capabilities for complex electromechanical systems,” states Jure Sola, Sanmina’s chairman and CEO.

According to Sola, DEPS design engineers have specialized knowledge of the communications industry, a key market for Sanmina.

Michael Clarke, president of DEPS, is joining Sanmina as senior VP and GM of its Enclosure Systems Division.

According to Devtek, the sale will allow it to focus on its core activities including aerospace operations.

Just before the DEPS deal was announced, Sanmina completed the acquisition of one of two electromechanical operations that Nortel had earmarked for Sanmina (Aug. p. 3). The CM took possession of Nortel’s wireless electromechanical manufacturing in Calgary, Canada. This activity was associated with Nortel’s Wireless Electro-Mechanical Subsystem Assembly (EMSS) operations. As one would expect, the transaction includes a multiyear supply agreement. Sanmina believes the Calgary unit will enhance its position in RF electronics manufacturing and assembly in North America.

Sanmina’s other wireless EMSS acquisition — an electromechanical unit in Chateaudun, France — is expected to close on or about Nov. 1.

SMTC Buys Enclosure Company

SMTC Manufacturing (Toronto, Canada) has acquired W.F. Wood, a precision sheet metal fabricator and system integrator in Holliston, MA. Terms were not disclosed.

“This acquisition is a catalyst for SMTC to add even more value within the supply chain,” states Paul Walker, SMTC president and CEO. “It is a perfect complement to our existing PCA and system-level assembly services and is the first of many steps we are taking to provide vertically integrated solutions.”

Walker tells MMI that SMTC plans to acquire more enclosure companies as well as capabilities in cable and harness assembly. This first deal “really does lay out our new strategy,” he says. “So as a mid-tier player, we’re going to be trying to offer all those services,” adds Walker.

W.F. Wood operates two facilities totaling 80,000 ft2 and employs 150 people. Its services include mechanical engineering, prototype and soft tool production, precision metal fabrication, wet painting, powder coat finishing, silk screening, electromechanical assembly, and high-complexity system assembly and integration.

What’s more, SMTC plans to set up an SMTC Access Centre in the Massachusetts site, as a complement to the enclosure operation. The majority of the company’s production facilities house Access Centres, which act as gateways providing prototype and NPI services for new programs.

Tom Harrington, president of W.F. Wood, comments, “As part of the SMTC enterprise, we immediately have the ability to offer our local customers a global solution, not only in our core business, but now a wider range of services. As well, we can leverage the entire company to expand our system integration business.” Harrington has been named VP and GM for SMTC Boston.

SCI To Make Enclosure Deal

SCI Systems (Huntsville, AL) has signed an agreement to acquire TAG Manufacturing (San Jose, CA), a privately held manufacturer of fabricated sheet metal products and assemblies, generally referred to as enclosures. TAG supplies both OEMs and EMS providers serving the computer, networking, communications and medical electronics industries.

The companies expect to close the deal within 60 days. Financial terms were not disclosed.

“This acquisition represents a significant step in the expansion of SCI’s capabilities in this strategic market segment,” states A. Eugene Sapp, president and CEO of SCI. He adds that there is “strong linkage of the companies’ core values.”

Thomas Grant, founder and president of TAG, will join SCI as a VP and will continue to run the TAG business.

SCI already manufactures some of its enclosures, but not a majority of them (June, p. 5). The company’s mechanical work has been centered in Plant 4 in Lacey’s Spring, AL.

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Solectron To Acquire Second Repair Co.

Solectron (Milpitas, CA) has entered into an agreement to acquire NULOGIX Technical Services, a wholly owned IBM Canada subsidiary in the business of repair, remanufacturing and refurbishment in Canada. This marks Solectron’s second repair acquisition, after its Sequel deal (June, p. 9), since the company’s Global Services unit was launched in March. The agreement will also give Solectron its first Canadian operation.

In NULOGIX, Solectron will obtain an 80,000-ft2 depot repair center in Vaughan, Ontario, near Toronto, along with specialized repair and testing equipment. As part of the agreement, Solectron will also take on about 300 NULOGIX employees. The transaction is expected to close before year end. Financial details were not disclosed.

“With this acquisition, Solectron’s Global Services business unit will be able to rapidly roll out its complete range of integrated service offerings in Canada to serve the growing needs of our global customer base requiring service in this strategic geography,” states William Mitchell, president of Global Services. According to Mitchell, this deal not only expands the unit’s footprint globally, but also strengthens its capabilities.

NULOGIX performs repair and remanufacturing of products such as LCDs, PCB assemblies, monitors, and electromechanical assemblies. The company also offers warranty support for OEMs, complete asset management, systems refurbishment, and part sales and service.

The Global Services unit aims to offer the most complete global footprint in the industry. Currently, Solectron operates dedicated service centers in four U.S. states as well as international centers in Brazil, France, Japan, and the UK.

NatSteel Makes Another ODM Move

To add ODM capabilities in advanced communication technology, NatSteel Electronics Ltd. (Singapore) intends to buy a 30% interest in Eumitcom Technology of Taiwan. This move, NEL’s second ODM deal this year, comes after NEL took a 10% stake in Shuttle, a motherboard supplier (July, p. 5).

Valued at about NT$226.8 million (about $7.2 million), the new investment involves purchasing 30% of the issued and paid-up capital of Eumitcom from China Development Industrial Bank. Closing is subject to conditions including regulatory approvals in China. NEL expects to take a commensurate number of seats on Eumitcom’s board, but according to a Reuters report, will have management control.

Established in 1994, Eumitcom serves as a strategic partner with such companies as Hitachi, Nortel and Siemens. The company operates facilities in Hsinchu Science Park Headquarters and Taipei and provides R&D, design, engineering and manufacturing. Eumitcom has expertise in wide and local area networks, Internet protocol, and RF and wireless communication.

According to NEL, this latest move into ODM will enable NEL to offer its customers and partners a broader spectrum of services, enhancing its global supply-chain capabilities.

“The wireless LAN market is expected to grow very fast and will be a critical component of the electronic millennium. As companies globally increase their competitive edge through expanding their roles in the global supply chain, it is important for contract manufacturers like ourselves to step up our capabilities in original design manufacturing, or ODM,” states Chester Lin, NEL’s CEO. “However, we are also being selective in our choice of acquisitions, particularly in the ODM industry where acquisitions often mean purchasing research and development expertise. Our objective is to acquire ODM capabilities that are synergistic and can help us anticipate the needs of our customers globally. In Eumitcom, we found strong ODM expertise in advanced communication technology, an area that will be increasingly important and necessary to support the growth of global businesses as the world moves into the electronic millennia.”

Eumitcom, in turn, is expected to take advantage of NEL’s strength in worldwide mass manufacturing and access to OEMs. NEL plans to act as Eumitcom’s manufacturing partner by fulfilling additional demand from Eumitcom customers. Reuters quotes Lin as saying that Eumitcom has been unable to meet customer demand because of inadequate facilities.

This transaction is not expected to have any material impact on earnings per share of NEL or its group of companies for the current fiscal year. However, NEL and Eumitcom plan to start joint bidding for business opportunities.

NEL expects ODM to contribute 30 to 50% of group sales in three to five years, reports Reuters.

Celestica Augments Power Business

Celestica (Toronto, Canada) has acquired VXI Electronics of Portland, OR, as an addition to Celestica’s power business.

Established in 1995, VXI sells power conversion products and is billed as a leader in the design and manufacture of voltage regulator modules and custom power supplies.

“The acquisition of VXI expands Celestica’s customer base and enhances our power systems product and service offerings,” states Eugene Polistuk, president and CEO of Celestica.

Market Data

Firms Call For Smaller Market Size

Conventional wisdom says the EMS market was $90 billion last year. But that wisdom may well be history.

Electronic Trend Publications (San Jose, CA) has recently published a study that says the worldwide EMS market reached $44.9 billion in 1998. Not only that, Technology Forecasters (Alameda, CA), the firm that originated the $90-billion figure, has lowered its estimate for 1998 to $60 billion. More on this estimate will follow, probably next month.

ETP’s report, The Worldwide Contract Electronics Manufacturing Services Market, forecasts a compound annual growth rate of 23.6% for 1998-2003, with the EMS market reaching $129.7 billion in 2003. According to the ETP report, the market will total $58.1 billion this year and $73.6 billion next year, followed by $90.7 billion in 2001 and $109.6 billion in 2002.

As one would expect, the ETP report predicts box build will grow at a high rate than PCB assembly will. For the 1998-2003 period, the report projects a CAGR of 27.7% for box build versus 21.6% for PCBA. Box build will grow from $13.9 billion in 1998 to $47.1 billion in 2003, while PCBA will increase from $31.1 billion to $82.5 billion over the period.

ETP projects the fastest growing market segments for CMs will be consumer products and communications equipment, with each segment expanding at a higher than 35% CAGR. Far below this rate, the computer, medical, automotive, and industrial segments will grow at CAGRs in the teens, according to ETP. The ETP report shows the computer and communications segments in 2003 roughly equal at market shares of 42% and 40% respectively.

For more information on ETP see: www.electronictrendpubs.com.

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Emerging CMs

New EMS Names Still Appearing

The EMS industry may be shrinking in numbers due to consolidation, but that trend has not stopped the creation of new names in the industry. Below are three examples. In the first, an emerging European player, still relatively unknown in the industry, has changed its name to create a separate identity for itself. New names can also signify new EMS businesses, as the other two stories show. In one case, an EMS business is being started from an OEM operation, while the other illustrates a CM starting from scratch.

Italian CM Emerges on European Scene

Italy is not known as a breeding ground for fast-rising contract manufacturers. But Italy’s IXTANT S.p.A. has arrived as a significant player in Europe’s EMS market.

Established in 1997, IXTANT now boasts 10 facilities with total of 2300 employees, 55 SMT lines and more than 2 million ft2 of production area. The CM operates in Italy, Germany and Croatia and expects that a new facility in Timisoara, Romania, will be online within a matter of months. Headquarters are in Ronchi dei Legionari in Northeast Italy.

IXTANT has created a network of small plants to meet the need for high mix and medium-to-low volumes from OEMs often overlooked by large providers. Also, high-volume manufacturing centers in the network satisfy the needs of the largest customers.

This network has been built through a combined strategy of acquiring CM and OEM facilities in mature markets and making greenfield investments in emerging markets. Since starting up a little over two years ago, IXTANT has made nine acquisitions including facilities divested by Alcatel, Hagenuk and Texas Instruments. IXTANT also acquired five Italian CMs including one in which Olivetti owned an interest. (See also May, p. 10).

IXANT was formed as a subsidiary of the Italian cell phone supplier Telital Inc. after it became apparent that local CMs supplying Telital did not have the financial strength to support its growth. Formerly known as Telital Manufacturing, IXTANT adopted its current name in June. IXTANT says the name change serves as an important milestone in its emergence as an independent, diversified CM.

Its customers include OEMs in telecom, PC peripherals, automotive, consumer electronics, home appliances, industrial controls and office equipment.

For example, in April IXTANT landed a contract from Nortel Networks to produce part of Nortel’s European requirement for GSM base transmission stations. This work, which will be handled in Italy, includes PCB assembly, mechanical assembly, functional test and rack preconfiguration. Then in July, Merloni Elettrodomestici, a European supplier of home appliances, selected IXTANT as an outsourcing partner. The CM will initially handle process engineering and PCB assembly for Merloni, but expects the relationship to extend to other activities over time. Another customer is the Globalstar consortium, for which IXTANT is a manufacturer of dual-mode satellite/GSM phones.

IXTANT delivers a spectrum of services including product, process and test engineering; prototype development; re-engineering; materials management; PCB and final assembly; packaging and delivery; and postmanufacturing activities.

Currently, IXTANT’s annual revenues, including sales to the parent company, are $100 to $120 million. The CM’s growth strategy is to increase the external portion of its sales to 80-90% of the total and to further develop new market segments in addition to its core telecom business.

To showcase its capabilities, IXTANT will install and operate a full-scale production line at Productronica 99, to be held Nov. 9-12 in Munich, Germany.

Boundless Launches EMS Subsidiary

Publicly held Boundless Corp. (Hauppauge, NY), known as a terminal manufacturer, has formed Boundless Manufacturing Services as new subsidiary to pursue EMS business. Boundless Manufacturing will utilize the parent company’s 155,000-ft2 facility in Hauppauge and its build-to-order capabilities. The new service plans to acquire facilities as its business expands.

What makes Boundless different from the OEMs that tried contract manufacturing and either withdrew or sold out? “The difference here is that build-to-order, lot-size-one, just-in-time manufacturing is this company’s core competency,” responds Joseph Joy, president of Boundless Manufacturing. Manufacturing, he adds, “is what the company does best.”

“We’ve been doing lot-size-one build-to-order since 1987 on high-volume products and since 1982 on complex systems. So we were way ahead of the marketplace,” says Joy. Boundless developed this logistics capability because it was the only way the company could compete in the character terminal market.

Boundless Manufacturing sees an opportunity in being able to offer BTO services for smaller programs that the large providers might pass up. “We think there’s a real unserved market there,” says Joy. “We will quote on larger programs if presented with the opportunity, but we think the small to mid-sized, medium-velocity BTO programs are the real opportunities for us.”

It was with this coverage gap in mind that Joy originally approached Boundless Corp. At the time, he and a colleague, Tony Giovaniello, had formed Shasta Palmetto Partners for the purposes of acquiring a business. Having worked at Boundless when it was part of NCR, Joy felt Boundless’ capabilities were ideally suited to fill the coverage gap. So Shasta offered to buy the Boundless plant through a divestiture. Boundless had other ideas.

“Instead of selling it off, they wanted to redirect some of their resources at this market because they liked the concept,” reports Joy.

As a result, Shasta partnered with Boundless and owns a substantial equity interest in the EMS venture. Joy came over to run the new business, and Giovaniello joined as executive VP of business development. Both men had previously worked in the systems group at Solectron — Joy as VP of business and supplier development for most of his tenure and Giovaniello as a director of business development.

One place Boundless Manufacturing will look for customers is within Boundless’ customer base. Its customers include IBM, NCR, Hewlett-Packard, the Tandem and Digital Divisions of Compaq, and Lucent Technologies. Boundless presents itself as the largest U.S. manufacturer of text and Windows-based terminals, other thin-client solutions and Internet appliances.

Boundless Manufacturing is offering end-to-end supply-chain solutions. Its supply-chain capability includes the Hauppauge facility, four service and repair depots in the U.S., a distribution center in the U.S. and one in the Netherlands, and engineering services from PCBA layout and mechanical design to system integration. But since there is no board assembly capability at present, it will be offered through alliances. Although Boundless Manufacturing intends to acquire board capability, it expects to rely on alliances for a great deal of its future requirements.

What effect will the EMS business have on Boundless’ margins? “There will be a shift from margin-based thinking to return-on-asset thinking,” says Joy. “The ROA of a well-run contract manufacturer, I believe, will be better than the ROA of the current company even though margins will be lower.”

Integrex Funded For Contract Mfg.

Integrex, a start-up company, has obtained $4 million in venture capital to establish a contract manufacturing operation in Bothell, WA. The company is negotiating a facility lease for about 20,000 to 25,000 ft2 and expects to be in production early in Q1 next year.

The operation will focus on high-mix, low- to medium-volume customers and will offer vertically integrated services including engineering, purchasing, logistics, manufacturing, distribution and repair.

Integrex believes it can compete against well-known CMs in its region. The start-up says larger competitors require a minimum contract size and typically build a quarter’s worth of production at one time. Integrex, on the other hand, will only build one or two weeks worth of products at a time.

Three Integrex executives have experience working at Bothell-based ATL Ultrasound, recognized by Philips as a world-class benchmark operation within the Philips organization. Integrex’s CEO and president is Ted Volberding, formerly director of contract operations for ATL.

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Acer and Solectron Forge Alliance

Solectron (Milpitas, CA) and a unit of Taiwan’s Acer Group, the third largest PC manufacturer, have formed a strategic alliance to provide global design, manufacturing and after-sales service solutions for OEM-branded PCs, servers and workstations. Financial terms were not disclosed.

The companies plan to leverage their combined resources, including facilities, systems and personnel, to provide an integrated, global and optimized, end-to-end solution. According to the two parties, this is the first offering of its kind. Both companies will manage this alliance under a joint management matrix. Already, they have begun preliminary discussions with joint customers and will likely begin projects before the end of the year.

“The alliance is another significant step in Solectron’s rapid transformation into a global supply-chain facilitator,” states Dr. Ko Nishimura, Solectron’s chairman, president and CEO. “With Acer’s world-class technology and systems design capabilities, combined with Solectron’s newly formed technology solutions business unit, we will be able to offer our customers an even broader range of technology services across the entire supply chain. Many of our customers are requiring comprehensive original design manufacturer (ODM) solutions but also need global materials leverage, manufacturing, distribution, logistics and services support. With the combined strengths of Acer and Solectron, we will now be able to provide a truly one-stop-shop solution for our customers’ branded products.”

Solectron will gain access to Acer’s technology and products, including PC-based components and software capabilities. Acer will be able to take advantage of Solectron’s ability to manage the global supply chain.

This is Solectron’s second alliance in computer manufacturing. Last year, the company teamed up with distributor Ingram Micro in an alliance that so far has not produced any large programs for Solectron.

ACT Buys GSS/Array Assets

This month, ACT Manufacturing (Hudson, MA) announced and closed the purchase of certain inventory and fixed assets from GSS/Array Technology, the San Jose, CA, subsidiary of GSS/Array Technology Public Company, Ltd. The parent company is based in Thailand and publicly listed there. ACT paid book value of about $13 million in cash, of which about $8.8 million went for inventory and about $4 million covered the fixed assets.

Also, ACT picked up somewhere around ten customers, or most of the U.S. customers that had been served by GSS/Array in San Jose. Among the customers added are Digital Microwave, New Era, Lucent Technologies, P-Com and Repeater Technologies. The new customers are primarily in the high-end/RF technology area, a value-added niche that ACT already plays in.

The purchase “is intended to strengthen our presence in the western United States. The transaction would result in significant relationships with additional high-technology customers which would utilize ACT’s high-end technology and radio frequency capabilities,” states John Pino, ACT’s chairman and CEO.

For GSS/Array the parent, this sale allows it to get rid of an operation that was well underutilized and losing money. The company blames this problem on the Asian financial crisis, which did not affect company operations as one might expect. “Thailand wasn’t getting hit. San Jose was,” says Robert Zinn, CEO of the parent company. He explains that at the time the San Jose operation was doing telecom infrastructure work for which there was a big demand in Asia. The loss of Asian work left San Jose in need of new customers, but the company did not have the capital to rebuild the customer base there.

GSS/Array wanted a buyer already versed in the sort of business — telecom, complex box build and RF — that the San Jose operation was involved in. “We felt they [ACT] were the proper partner for us because they were more focused on that type of business,” says Zinn.

The San Jose operation resides in a facility of about 100,000 ft2, which includes the equivalent of two SMT lines. In California, ACT also has a Santa Clara facility of 75,000 ft2, which came with its acquisition of CMC Industries. “We are going to combine them. Where you combine them is a little bit up in the air,” says Douglass Greenlaw, ACT’s VP of strategic development. He says the current plan is to move production, where possible, from the San Jose operation to the Santa Clara facility.

ACT is hiring certain GSS/Array employees to support the additional programs that ACT took over.

GSS/Array will not abandon California entirely. The company will maintain the CEO’s corporate office there, which will include sales and purchasing.

With help from acquisitions, ACT expects sales to be in the billion-dollar range next year.

Comtel Acquires 2nd CM in S. California

Comtel Holdings (Tustin, CA) has completed its second acquisition of a Southern California CM with the stock purchase of Corlund Electronics in Newbury Pack, CA. This deal forms the next step in Comtel’s plan to create a critical-mass market leader in Southern California.

“There is a strong need in the region for a critical-mass CM that has both the capital backing and the infrastructure to handle the mid-volume OEM’s needs — $10 million to $20 million annually,” says Lyle Jensen, Comtel Holdings’ CEO. “Comtel Holdings’ combined revenues for calendar year 2000 are projected at $65 million to $70 million with at least one more acquisition in the works that should allow us to exceed $100 million. Our investment goal is to create annual capacity of $200 million to $300 million in the region and then look at other strategic US regions to replicate the model.” Comtel expects to reach that capacity goal during the year 2000.

Corlund Electronics, a 17-year-old operation, has primarily served the Ventura County/San Fernando Valley region in Southern California. The CM’s 27,000-ft2 facility is expected to double in size next year. Capabilities include both card- and box-level assembly with an emphasis on medical and RF/microwave products. Bruce McDonald will continue as Corlund’s president.

Earlier this year, Comtel Holdings also obtained the assets of Comtel Electronics as a platform for further acquisitions in a regional roll-up strategy. Comtel Electronics operates a 60,000-ft2 facility in Tustin with a capacity estimated at $75 million. Offering both card- and box-level assembly, Comtel Electronics focuses on high-mix customers in medical, RF/microwave, power supply, instrumentation, security and network server products.

Comtel Holdings is majority owned by investment funds managed by MapleWood Partners LP, a private equity firm specializing in high-growth markets.

Puerto Rican CM Adds GTE Unit

Electronic Manufacturing Services, a CM based in Mayaguez, Puerto Rico, has acquired Q-Tel, formerly a subsidiary of GTE’s Dominican Republic operations. The deal gives EMS an additional 52,000 ft2 in the Dominican Republic. A contract manufacturer, Q-Tel assembles SMT and through-hole PCBs along with fiberoptic cable and telecom equipment. With this deal, EMS also gained Q-Tel’s contract with Lucent Technologies.

This the third time that EMS has bought OEM assets in the last three years. In 1997, the company acquired a Westinghouse division with one facility in Puerto Rico and another in the Dominican Republic. Then last year, EMS acquired a Motorola facility that built custom pagers in Puerto Rico. The company now has over 1300 employees located in seven plants with a total of 223,500 ft2 split between Puerto Rico and the Dominican Republic. Projecting 1999 sales of $400 million, EMS says it is the Caribbean’s largest CM.

EMS’ customers include Hewlett-Packard, Unisys, Motorola, GE, Alcatel, Emerson Electric and Lucent. EMS assembles the three types of PCBs as well as offering box build and cable assembly.

The company traces its origins in Puerto Rico to a local cable assembler that was started in 1989 as a supplier to the former Digital Equipment. In 1993, EMS acquired certain assets of Digital’s Puerto Rican operation and began PCB assembly.

MTI Gains Thick-Film Assets from Zenith

MTI Electronics, an EMS company based in Menomonee Falls, WI, has acquired the assets of the former Microcircuits Division of Zenith Electronics. MTI bought automated equipment, circuit designs, customer orders and certain inventories for thick-film hybrid microcircuits. Terms were not disclosed.

“We are delighted to add former Zenith Microcircuit customers to our customer base and look forward to the opportunity to develop long-term partnerships with them,” states Greg Martinek, president and CEO of MTI. Zenith, which closed its Microcircuits Div. this summer, also entered into a supply agreement with MTI for certain thick-film circuits.

Unlike PCBs comprised of plated copper circuits on organic substrates, thick-film hybrids employ screen-printed conductors over ceramic substrates. MTI offers both PCB assembly and thick-film hybrids as well as box build.

In addition to its Menomonee Falls facility, MTI operates plants in Guadalajara, Mexico, and Bangalore, India. The Menomonee Falls facility recently earned certification to QS-9000 Third Edition, and MTI expects its Guadalajara plant to be certified during Q1 2000.

More deals done…In Andover, MA, Celestica (Toronto, Canada) has acquired Hewlett-Packard’s Surface Mount Center, the PCB assembly operation of HP’s Healthcare Solutions Group. The deal was announced earlier this year (April, p. 2-3). According to Celestica, the Andover operation’s PCBA capabilities will add to Celestica’s portfolio of service offerings in the Northeast U.S. “This acquisition enhances our already strong presence in the strategic Northeast region, where many of our customers are located. Additionally, it provides us with further product diversification into the growing medical equipment market segment,” states Eugene Polistuk, president and CEO of Celestica….Solectron has closed a previously announced deal to take over manufacturing of PCB assemblies produced in IBM’s Greenock, Scotland, operations for its Netfinity servers (Aug., p. 7). To support IBM design teams, Solectron intends to set up a 38,000-ft2 NPI center in Port Glasgow, Scotland.

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Pen To Buy Dallas CM

Publicly held Pen Interconnect (Irvine, CA) has signed a letter of intent to purchase The Gammon Group, a private CM in Dallas, TX, and a local affiliate of Gammon.

The Gammon Group and its affiliate manufacture products such as electronic assemblies, power supplies and cabinets for the electronics and medical industries as well as turning out motor generators for the RV and boating industries. Together, these two operations generate annual revenues in the $10-million range.

“The Dallas-Forth Worth area is expanding rapidly and the need for contract manufacturing is readily evident,” states Stephen Fryer, Pen Interconnect’s president and CEO. “This acquisition expands Pen Interconnect’s directed focus on contract manufacturing and power supply design and manufacturing in a geographic area about which we are enormously bullish.”

Pen expects to retain the management team at The Gammon Group and make it a wholly owned division of Pen.

The deal will be a stock transaction, but terms were not released. Closing is expected before year end.

Pen’s contract manufacturing unit, InCirT Technology, recently increased its work force by 25%. Providing services from circuit and board design to end-user distribution, Pen builds for customers in industries that include computers, consumer electronics, instrumentation, avionics, communications and semiconductor applications.

InCirT just announced new business from an international computer company. The CM will perform ongoing work for the company and do repair and upgrade work on PCBs for one of its product lines.

Meanwhile, a merger between Pen and Transdigital Communications (Brea, CA), a supplier of aviation and entertainment products, has fallen through.

Stanford Telecom Selling Contract Mfg. Unit

Stanford Telecommunications (Sunnyvale, CA) says it is “well into the process of closing a deal” to sell its contract manufacturing division known as MQA. The sale is required by the pending merger of Stanford Telecom with Newbridge Networks. Stanford Telecom (STel) declined to identify the buyer.

MQA operates a 70,000-ft2 facility in Sunnyvale and employs about 150 people. In fiscal 1999, MQA generated sales of $31.2 million, of which $4.3 million came from the parent Stanford Telecom.

The company says the buyer of MQA will likely enter into a supply agreement to manufacture current STel products. STel designs and manufactures digital products and systems for communications via terrestrial wireless, satellites and cable.

NEC Plant For Sale

In Hillsboro, OR, NEC America has put a 380,000-ft2 plant on the block. As part of a new global restructuring strategy, the company plans to sell the plant to a CM that would turn it into a contract manufacturing facility. The facility would also continue to produce NEC communications network equipment and automotive electronics.

The company has retained Deutsche Banc Alex Brown (New York, NY) to identify CMs with the financial strength and expertise to buy the 15-year-old plant, maximize its productivity, and meet NEC’s long-term manufacturing needs. NEC America will immediately begin reviewing prospective CMs and hopes to complete the transition by mid-2000.

“Contract manufacturing companies trying to expand their business in the telecommunications equipment area will find our capabilities to be especially valuable. Once we complete this transition, it is very likely that this plant will quickly realize significantly greater productivity and accelerated growth,” states Phil Sperr, GM of the Oregon plant.

Communications network products manufactured there include access network systems, integrated communication systems and synchronous optical networks. The plant employs 500 people.

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General DataCom Outsources to MATCO

General DataCom Industries (Middlebury, CT), a communications OEM, has outsourced its SMT board assembly operations in Naugatuck, CT, to The MATCO Electronics Group (Vestal, NY). Operations will be transferred to MATCO, and the move will affect about 115 GDC employees.

According to GDC, this action completes the company’s outsourcing plan to free the company of noncore activities. Previously, GDC outsourced its electromechanical assembly, cable and harness assembly, power supply manufacturing, and through-hole board assembly.

GDC says the move will allow it to focus further on the increasingly profitable internetworking, ATM and DSL markets. “At the same time, completion of our outsourcing plan will allow GDC to maintain production quality, reduce operating costs, increase inventory turnover and speed product time-to-market,” states Charles Johnson, GDC’s chairman and CEO. The company also listed a number of financial benefits resulting from its plan. They are: reduced product costs and improved gross margins, generation of about $7 million in cash, reduced investment in new equipment, reduced inventory carrying costs, and improved financial metrics.

GDC says this move is concurrent with actions being taken by others in the telecom industry.

The company designs, develops and manufactures multiservice communications systems for service providers and enterprise businesses. GDC’s offerings include multiservice switching platforms for ATM networks and network access products.

The MATCO Electronics Group operates as a division of The MATCO Group, a privately held company. Through 13 facilities in nine states and Mexico, MATCO Electronics offers not only the typical contract manufacturing services, but also PCB fabrication, cable and harness assembly, precision machining, plastic injection molding, and refurbishment and demanufacturing. MATCO Electronics employs about 2000 people and reported EMS sales of $411 million for 1998.

More new programs…Flextronics International (San Jose, CA) says it has won a “substantial program” to build cell phones in Hungary for Motorola. Production will take place primarily at Flextronics’ site in Zalagaerzeg. The provider says Motorola is likely to become a top-five customer in time….Varian Inc., a supplier of scientific instruments and vacuum technologies, has landed a manufacturing contract from RC Networks (San Diego, CA), a developer of high-speed Internet access products for multitenant units. Varian’s contract electronics manufacturing center in Tempe, AZ, will produce RC Networks’ RC8000 access concentrators for deploying DSL technology over tenants’ existing telephone wires. Varian will handle all manufacturing, product fulfillment, procurement and repair services. “The significance of our partnership with RC Networks is twofold,” explains Wilson Rudd, VP and GM of Varian’s Electronics Manufacturing. “First, it strengthens our position in the growing virtual manufacturing arena, in which we provide high-mix, low- to medium-volume manufacturing services. Second, our expansion into California and beyond demonstrates our commitment to serving customers in broader geographic regions.” RC Networks says the Varian partnership will enable it to focus on product development and innovations to its existing product line. Varian’s Tempe center produces about 1800 different products per month for customers ranging from $10 to $100 million in sales. For Varian’s fiscal 1999 ended September, the Tempe center generated sales of $115 million, of which roughly $91 million came from external customers. Varian Inc. is one of three parts into which Varian was divided earlier this year….Electronic Components and Systems Inc., a wholly owned subsidiary of ECS Industries (Tuscon, AZ), has been awarded new business for the next quarter from Alcatel. Shipments will start in October and ramp through November and December, consuming much of the available capacity in the ECS facility in Nogales, Mexico, and affecting the ECS facility in Fremont, CA, as well. This business should add more than $500,000 in Q4 revenue and will contribute to a profitable Q4, says ECS. ECS Industries, a public company, recently changed its name from Global Electronics Manufacturing (July, p. 4)….ZTEST Electronics (Mississauga, Ont., Canada) is serving as manufacturing partner for a wireless Home Gateway System from Nexsys Commtech International (Waterloo, Ont., Canada). The first U.S. pilot project for this system, which allows remote monitoring or control of home devices, is taking place in Indiana. ZTEST, a shareholder in Nexsys, has provided the company with investment capital and design services….Lifeline Systems (Framingham, MA), a maker of personal response devices, has outsourced equipment manufacturing to Ademco, a division of Pittway.

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Venture Plans Three Facilities

Adds four major customers

Expansion in Asia continues. Venture Manufacturing (Singapore) will build two facilities in southern Malaysia, totaling 120,000 ft2, at a cost of between S$5 million and S$6 million each. The plants are expected to be on-line by the middle of next year. What’s more, the company plans to lease 20,000 to 30,000 ft2 on the Indonesian island of Bintan, south of Singapore. This plant is due to be operational early in the year 2000. Overall, Venture’s floor space will exceed 750,000 ft2 by mid year 2000.

But the company also has plans for the U.S. After setting up a facility in Fremont, CA, last year, Venture tells MMI that it will be expanding its presence in the U.S. “in a major way” over the next three to five years. Under this U.S. strategy, Venture aims to provide an integrated range of services in EMS, ODM, and product completion and distribution.

Meanwhile, the company has signed four major new customers. They are IBM, a U.S. communication and networking OEM, a Japanese printing and imaging company, and a computer storage company. These programs are expected to contribute “very significant revenue” and help Venture grow by about 30% next year. Three of them are about to start in production.

Venture reports its work force has increased to more than 3200, up from 2300+ at the end of 1998. To illustrate ODM capabilities, the company plans to increase its ODM design staff to more than 50 engineers by early 2000.

Facilities opened…Solectron’s new 370,000-ft2 facility in Suwanee, GA, has begun operations with 1500 employees and 11 SMT lines. The site will serve as the company’s East Coast center for medium- to low-complexity systems assembly in medium to high volumes for PC, server, workstation, telecom and networking equipment customers. NPI services are also included. The company has combined its Duluth and Braselton operations into this new facility with more capacity….Flextronics completed the first phase of an expansion plan for its facility in Tab, Hungary. As a result, production area increased from 48,000 ft2 to 63,000 ft2, effectively doubling PCBA capacity to 16,000 boards a day. The final phase of construction, due for completion by year end, will add another 15,000 ft2 of production and office space. Flextronics plans to hire an additional 400 people for the Tab factory by the end of the year, bringing the work force there to 1400….National Manufacturing Technologies (Carlsbad, CA), a publicly held company formerly known as Photomatrix, has opened a leased facility of nearly 20,000 ft2 in Tijuana, Mexico. In a related transaction, NMT purchased assets and acquired certain customers from Mirror USA and EspejoMex. This was a cash deal, and NMT acquired no liabilities and incurred no debt as a result of it. The company has also purchased a Fuji SMT line for the facility. NMT’s new Mexican subsidiary has received a contract from RPM Micro. “We believe this transaction is vital to the future growth of the company, as it allows us to compete for business that has gone offshore in the past, and to serve the major maquiladoras operated by large international firms in Northern Mexico,” states Patrick Moore, CEO of NMT. “It is instrumental to our targeted electronic enclosure business, as we can be extremely price competitive for complete electronic systems integration and other subassembly portions of the business.” NMT, which specializes in the manufacture of electronic enclosures and subassemblies, sold off its scanner division in June….Last month, Flash Electronics dedicated a 44,000-ft2 plant, its second site in Fremont, CA (June, p. 10).

Facilities under construction… Dovatron (Longmont, CO), the electronics assembly subsidiary of The Dii Group (Niwot, CO), has broken ground for a manufacturing campus in Guadalajara, Mexico. The new campus will replace Dovatron’s leased facilities there, which have been in operation since December 1996. Dovatron expects that the first building, sized at 250,000 ft2, will reach production in Q1 2000. It will eventually hold as many as 23 high-speed SMT lines, nine box-build lines, and a distribution complex. The company plans to build a 1 million-ft2 complex in six phases. Ronald Budacz, Dii Group chairman and CEO comments, “Our printed circuit board fabrication customers are asking us to also establish a PCB facility in Guadalajara, and we have confirmed that Dii’s land is suitable for such an expansion. No definitive timetable has been set, but the local printed circuit board market clearly shows strong potential.”…In Colorado Springs, CO, Skyline Electronics has started construction on a 50,000-ft2 facility to serve the CM’s growing roster of customers in the Front Range region. “We have literally outgrown the facility we are in. We desperately need more space,” says Robert Mulnix, Skyline’s GM. Replacing Skyline’s existing 30,000-ft2 facility in Colorado Springs, the new factory is designed for fast changeovers and variable volumes in a continuous flow operation. Multiple lines of identical equipment will minimize bottlenecks. Skyline expects a move-in date of January 2000. Last year, Skyline was acquired by Midwestern Electronics (Aug. ’98, p. 3-4), which has adopted a new name, MercuryEMS, pending FTC approval. With facilities in Colorado, Florida, Iowa and Kansas, the parent company is no longer confined to the U.S. Midwest. The new name also reflects an emphasis on speed and flexibility and customer service. MercuryEMS, which employs 600 people, plans to be at a $100-million run rate by the end of the year.

Facilities Closing

EFTC (Denver, CO) will close its plant in Fort Lauderdale, FL. This action is part of a previously announced restructuring plan that is expected to result in a pretax charge of about $35 million in Q3 (July, p. 7). The company plans to transfer the work being done at the Fort Lauderdale plant to operations in Kansas, Massachusetts, and Oregon and Washington. EFTC expects to shutter the plant by Q1 2000. About 200 people currently work there. EFTC says this action will reduce excess capacity and save money. Once the transferred work reaches full production, EFTC expects cost savings of $3-5 million a year before taxes.

This plant was selected for closure because its lease is expiring and customer proximity favored other plants. EFTC originally acquired an operation in Fort Lauderdale from AlliedSignal in 1997.

Meanwhile, EFTC has launched a new program, Expedition 20/20, for achieving five goals in 20 months and 20 days. These goals are: to earn key customers’ top ratings for delivery and quality, to achieve pretax profits of 6%, to raise inventory turns to six per year, to achieve a $100-million quarterly run rate, and to be recognized as the leader in high-mix EMS. This program is similar to one started by EFTC in 1996.

IEC Electronics (Newark, NY) also announced the closing of its facility in Longford, Ireland. For the September 1999 quarter, the CM will incur certain charges totaling about $11.3 million including a write-down to market value of certain machinery and equipment to be sold, increased depreciation of certain production equipment, the closing of the Irish facility and disposal of assets of IEC’s Irish subsidiary, and other items. IEC obtained this operation when it acquired an Irish CM, Ohshima Electronics Manufacturing, in 1998 (Aug. ’98, p. 4).

“These charges reflect changes that we feel are needed to support our plan to return IEC to profitability. The decision to divest the Ireland plant is a particularly difficult part of this plan. We believe, however, that this action is in the best interest of the company as we adjust our production capacity to our current and projected business needs,” states David Fradin, IEC’s president and new CEO.

The company believes it can successfully shift work from the Irish plant to other IEC facilities without affecting important new accounts won in the last 12 months.

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Some financial news…SCI Systems (Huntsville, AL) in its 1999 annual report identifies two new 10% customers. Of SCI’s $6.71 billion in fiscal 1999 sales, Compaq contributed $840 million, or 12.5%, while Dell amounted to $681 million, or 10.1%. HP continues to be SCI’s largest customer, accounting for $2.47 billion, or 36.7%, of fiscal 1999 sales. So SCI’s top three customers represented 59.3% of sales for the fiscal year ended in June. The ten largest customers contributed more than 75% of revenues. In fiscal 1999, foreign sales increased to 42% of revenues, compared with 31% in fiscal 1998. SCI expects continued growth of foreign sales, as customers seek the lowest costs possible for their products. In addition, the company anticipates that the sales percentage from PC production will diminish because growth in other product areas is expected to outpace this segment. SCI reports PC production has been relatively stable for the past two years and has yielded a steady revenue base….Flextronics has begun a public offering of five million common shares. The company plans to use the proceeds to fund the further expansion of its business, including additional working capital and capital expenditures, and for other purposes. Banc of America Securities and Morgan Stanley Dean Witter are serving as the managing underwriters…The Dii Group has priced its public offering of six million common shares at $33 per share. The company granted its underwriters an overallotment option of 900,000 shares. This offering was managed by Salomon Smith Barney; BancBoston Robertson Stephens; Donaldson, Lufkin & Jenrette; Bear, Stearns & Co.; and Thomas Weisel Partners….ACT Manufacturing has proposed a public offering of 2.75 million common shares, of which 2.5 million will be offered by the company….According to Bloomberg News, Asian Micro Holdings Ltd., a Singapore CM, was to go public last month with an IPO to raise net proceeds of S$17.9 million. Bloomberg reports that the company provides flexible circuit assembly services to disk drive customers including Read-Rite, Maxtor, Seagate and Western Digital….Elamex (Cd. Juarez, Mexico) has sold its 51% interest in OptiMag to Veeco Instruments for $2.3 million plus an earnout. OptiMag supplies automated optical inspection and process control equipment for the data storage industry….For the fiscal year ended June 30, SMTEK International (Thousand Oaks, CA) revenue rose 12% to $59.5 million, while the company incurred a net loss of $2.5 million for the year. The loss resulted principally from a disallowance of prior tax refunds and increased inventory reserves.

Some EMS company news…XeTel (Austin, TX) has achieved production ready status for board assemblies with flip chip packages at 0.4 mm pitch. The CM has also developed an underfill process, which enhances the reliability of these assemblies….San-mina has joined the High Tech Consortium — Year 2000 & Beyond, formed to reduce the impact of Y2K (July, p. 8)….Aimtronics (Delta, B.C., Canada) has installed new wirebonding equipment and a new Quad SMT line in its Kanata, Ontario, plant. The Canadian CM has also outfitted its Brockville, Ontario, and Ogdensburg, NY, plants with x-ray inspection equipment for BGA work. According to Aimtronics, the Odgensburg plant doubled its business last year and is planning to double it again this year….Superior Manufacturing Co., a Southern California CM, has received ISO 9002 certification for its 100,000-ft2 facility in Santa Ana. Focused on low volume and high mix, Superior ranks itself in the top 100 of the EMS industry….The Interconnect Systems business of CTS Corp. has earned ISO 9001 certification for its Hudson, NH, operation. This facility is involved in the design and manufacture of backplane assemblies, PCB assemblies and box-level finished goods. Since starting up about 20 months ago, the facility has expanded from 12,000 ft2 to over 40,000 ft2. The NH plant serves as a sister facility to CTS Interconnect’s operation in Blantyre, Scotland. CTS, the parent company, is known as a component supplier….EFTC’s Southwest Mil-Spec Operations in Tuscon, AZ, have been certified to ISO-9002 and AS9000. The latter is an aerospace quality standard that includes additions to the requirements of ISO-9000….SCI plans to have all of its plants registered to the environmental standard ISO 14001 during its fiscal 2000….Deloitte & Touche has ranked CM Winland Electronics (Mankato, MN) 29th among the 50 fastest-growing technology companies in Minnesota. Winland reported a 237% increase in revenue from 1994 to 1998.

Supply-chain appointments…MCMS (Nampa, ID) has named Bill Anderson as VP of materials and supply-chain management. Most recently, he served as VP of operations for SMTC Manufacturing (formerly SMT Centre). Before that, Anderson was executive VP and GM for IEC Electronics….Celestica has appointed Frank Harrell as the new director responsible for its SupplyFlex program worldwide. Previously, he worked at both NCR and Sun as a senior executive in the supply chain area. The SupplyFlex program is designed to assure availability of standard parts even when forecasts are exceeded (May, p. 10)….John (Jack) Ryan has become VP for supply-chain innovation and services at Boundless Manufacturing Services, the new EMS subsidiary of Boundless Corp. (See Boundless article.) Most recently, he led the computer supplier management team at Solectron. Previously, Ryan worked at NCR, where he managed relationships with NCR’s CMs and key system component suppliers.

Other people on the move…John Walsh has left Manufacturers’ Services Ltd. (Concord, MA), where he was VP of program management, to join a start-up company. He is replaced by Manuel Ruiz, who had served as director of program management at MSL’s Valencia, Spain, site….IEC Electronics has appointed Richard Weiss, formerly VP of finance at Microwave Data Systems, as VP and CFO. Also, Thomas Lawler has joined IEC as director of materials and MIS. His experience includes serving as director of materials at Dovatron. And Bruce Barton, formerly IEC’s VP of engineering, has been named VP and GM of Newark Operations….XeTel has made CFO Richard Chilinski a senior VP. Also, the company has hired Richard Phillips as VP of corporate development. Previously, he held several executive management jobs at high-tech companies including Logistix. Kozo Sato, once XeTel’s chairman and CEO, has retired from its board.

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Copyright 1999 JBT Communications

MMI September 1999

MMI November 1999

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