Vol. 11, No. 9: September 2001

Table of Contents

Cover story

Supply Base Consolidation on the Rise

Tech Trends

Solectron To Buy Optical CM

PEMSTAR To Ride Reference Design


MSL To Acquire MCMS Assets

Flextronics To Pick Up Network Services Firm

PEMSTAR To Add Development Firm

Canadian CMs To Merge

New Player Emerges from Mitel Divestiture

More deals done

More companies in alliances

Vitel Re-enters EMS Market in Southeast

Philips Wants To Sell Some Plants

New programs

New facilities added despite the downturn

Turmoil at Elcoteq

More plants being converted to NPI

Solectron expands executive team

More people on the move

New board members

Supply Base Consolidation on the Rise

Consolidation among EMS providers is easy to spot. Just look at the M&A deals recently announced among large providers. But there’s also another form of consolidation taking place, often behind the scenes. A growing number of OEMs have decided to use fewer EMS providers either for a major line of business or for the entire company. To the extent this trend creates winners and losers, it will impact the industry.

Some of the large public EMS companies such as Solectron and SCI Systems have been talking about supply base consolidation. Now there is mounting evidence of it.

# Hewlett-Packard recently announced that it will reduce the number of contract manufacturers its uses from 20 to about four. The company expects to save $100 million from this effort in its next fiscal year. The whittling down process is expected to take place within 12 to 18 months. But this announcement does not take into account HP’s proposed merger with Compaq.

# When a large OEM outsources manufacturing for an entire line of business to one EMS company, current EMS suppliers for that line can get squeezed out. Such was the case when earlier this year Ericsson decided that Flextronics would take over mostly all of Ericsson’s mobile phone production not in ODM hands (Feb., p. 7-8). That move meant Elcoteq would lose its European handset business with Ericsson. Also as a result, Solectron’s handset business with Ericsson is being moved to Flextronics.

# This trend is not limited to the largest OEMs. Take LTX, a supplier of IC test equipment. The company had about a dozen outsource vendors prior to the start of its fiscal 2000, during which LTX narrowed that group to a “small handful.” In June (p. 7), when the company announced a major outsourcing agreement with Jabil Circuit, LTX said the small handful remained, with Jabil taking the lead. Last month, SMTC told analysts that LTX has consolidated its EMS supply base to two providers – SMTC and Jabil. According to SMTC, both companies will serve LTX as providers for full system assembly.

# When it comes to claiming consolidation victories, perhaps no provider has been more public than SCI Systems. For example, in its April conference call the company reported winning business from Hitachi, HP, McDATA, Nokia and Nortel as a result of consolidation moves (May, p. 6).

Last year before the downturn, cutting suppliers was generally off the table. Demand was just too high. Now that the downturn has sunk in, OEMs are in a position to review their EMS suppliers to determine how many should be used. After all, using fewer providers reduces an OEM’s management load while giving more business to the remaining providers. MMI has learned that instead of facing a group of unhappy providers all clamoring for more business, at least two major OEMs are looking to satisfy their favorite providers and let the rest go away.

For one provider, however, being cut loose through consolidation is not the end of the world. Mack Technologies, a Massachusetts-based provider, is one of the contract manufacturers that will come off HP’s vendor list. “It comes of no surprise to Mack Technologies. We’ve actually been talking to HP about their strategy over the last year. And we’re aware of a strategy to move a large percentage of their production offshore to tax advantaged areas. Mack Technologies did not meet that footprint,” says Ron Jellison, president of Mack Technologies.

“Because we were aware of this strategy, the impact to Mack Technologies of this decision is minimal,” he adds.

At first blush, one would assume that tier-one providers would have an advantage with OEMs looking for offshore production. But Jellison sees an opportunity in supplier consolidation. “I like consolidation because not all the business is going to be appropriate for tier-one suppliers. Instead of having multiple tier ones, OEMs are going to look for several strong tier twos to handle their niche products,” he says.

Along the same lines, SMTC reported that some of its new program wins from its existing customer base have moved from tier-one competitors.

Still, when a mid-tier provider loses a major customer, the loss of revenue can be painful. According to MCMS’ 10Q for the quarter ended May 31, Cisco Systems subsequently notified MCMS of Cisco’s “intent to reduce the number of contract manufacturers on which they rely and to disengage with the company.” That news put additional pressure on a company that was already in financial trouble. See related article on p. 3.

According to Cisco spokesperson Terry Anderson, the company recently conducted a supplier business review to assess contributions from each of its contract manufacturers. As a result, she says “there has been some rebalancing of priorities among our supplier relationships.” Cisco is evaluating its CMs on a case-by-case basis. Anderson says this business review process does result in fluctuation in the number of CMs that Cisco uses.

Whether or not there will be additional fallout from this review process remains unclear. But Cisco certainly is not the only OEM to perform supplier reviews during the downturn.

Supply base consolidation is gaining momentum during this period of underutilized capacity. But this trend is not a simple mechanism. Supplier consolidation can occur across and between industry tiers. The full script as to who gets what is still being written.

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Tech Trends

Solectron To Buy Optical CM

Solectron (Milpitas, CA) has signed a definitive agreement to acquire Iphotonics (Glen Burnie, MD), a provider of core optical manufacturing services. Following Solectron’s earlier takeover of DWDM module manufacturing from Cisco, the Iphotonics deal marks the second optical acquisition announced by Solectron in 2001. This deal serves as yet another example of an EMS provider investing in optical capabilities, despite the downturn (see also August, p. 3-5).

According to Solectron, the acquisition will significantly increase the company’s optical capabilities. From Iphotonics, Solectron will gain capabilities that include advanced fiber handling, splicing, packaging and connectorization; design and prototyping for optical subsystems; as well as access to proprietary automated optical test and measurement systems for high-volume optical module and subsystem manufacturing. Solectron will also obtain nearly 60 years of fiberoptics experience on the part of Iphotonics’ management.

To be clear, this is an acquisition of a contract manufacturer of optical subsystems. Iphotonics has manufactured a variety of subsystems including add/drop modules, DWDMs, erbium-doped fiber amplifiers, gain blocks, OXCs, Raman amplifiers and transport cards. The deal does not involve optical component manufacturing, which some Flextronics acquisitions have targeted. Still, Solectron points out that it will be getting the capability to produce high-end optical components in its proposed acquisition of C-MAC Industries (Aug., p. 1-2).

Founded in February 1999, Iphotonics bills itself as the first independent provider of core optical manufacturing services. The privately held company operates a design, prototyping and manufacturing facility in Glen Burnie, MD, and an engineering and development center in Fremont, CA. In May, Iphotonics opened a 66,000-ft2 facility in Glen Burnie, which gave the company a total of 76,000 ft2 for its operations. The company has about 200 employees.

When the deal is completed, Iphotonics will become part of Solectron’s existing optical technology unit. Iphotonics executives, including CEO Susan Trumbule, will join Solectron in key roles.

The companies expect to close the deal during the November quarter. Financial terms were not disclosed.

PEMSTAR To Ride Reference Design

With optical still a new technology to many EMS providers, one might conclude that it’s too early to participate at the design end of the technology. But at least two providers have punched holes in this theory. Plexus (Neenah, WI) has already developed an OC-192 reference design (Aug., p. 3), and now comes PEMSTAR (Rochester, MN).

Texas Instruments has selected PEMSTAR to provide product development and manufacturing support for TI customers using TI’s Optical Wireless Solutions reference design. PEMSTAR will provide these services through its Rochester Product Realization and Optimization Center (ProCenter).

The new TI technology – described as the first of its kind to use an optical backbone – allows system developers to deploy wireless systems operating at 100 Mbps with 802.3 compatible Ethernet connections. Micro-electromechanical systems (MEMS) are one of the ingredients in this technology.

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MSL To Acquire MCMS Assets

MCMS files for Chapter 11

Manufacturers’ Services Ltd. (Concord, MA) has entered into an agreement to acquire MCMS’ operations in Mexico, Asia and the US for $43.5 million. To implement the sale, MCMS has filed for protection under Chapter 11 of the US Bankruptcy Code.

MCMS intends to sell substantially all of its operating assets to MSL. Because of the Chapter 11 filing, however, MSL will not acquire any of the liabilities for MCMS’ operations in the US. MCMS carries debt of roughly $260 million.

“The acquisition of MCMS meets several of our long-range strategic objectives, principally gaining a presence in Mexico and also strengthening our West Coast and Asian operations. Also, MCMS adds depth in the area of optics and radio frequency technology while increasing the diversity of our customer portfolio,” states Bob Donahue, MSL president and COO.

MCMS has operations in Monterrey, Mexico; Penang, Malaysia; San Jose, CA; Nampa, ID; Durham, NC; and Colfontaine, Belgium. A facility in Xiamen, China, is nearing completion. MSL is not acquiring the Belgium operation, which has filed for Judicial Composition under Belgium law and intends to continue on a stand-alone basis. MCMS employs 1750 people worldwide.

The transaction is subject to approval by the Bankruptcy Court where the filing was made. In addition, there is a waiting period during which MCMS must consider other offers for the assets. Closing is expected to occur in November. The purchase price is subject to certain adjustments and the assumption of certain liabilities.

Not only does the deal fit with MSL’s plan to expand operations in low-cost regions, it also gives MSL a San Jose NPI center, “which is directly aligned with where MSL is expanding its service offerings,” says Steve Schultz, VP of marketing and communications at MSL.

According to Schultz, integration of the two companies will take place quickly because the two have similar cultures and use the same ERP platform – Baan.

The parties say there is no customer overlap. MCMS’ largest customer is Extreme Networks, followed by Micron. Other customers include AT&T and in the optics world JDS Uniphase.

Highly leveraged MCMS blamed the downturn for being unable to service its debt.

Flextronics To Pick Up Network Services Firm

Flextronics (Singapore) plans to acquire Telcom Global Solutions (Irving, TX), which provides network planning, design and optimization services for telecom OEMs. Telcom Global will become part of Flextronics Network Services, possibly the only such EMS business unit to provide network installation and commissioning services globally. The deal is expected to close on or about August 31. Financial details were not disclosed.

Telcom Global is a global provider of wireless network and RF consulting services for the wireless telecom industry. Reportedly, the firm serves many of the largest carriers and equipment suppliers on a worldwide basis. Consulting services include analysis, planning and optimization of wireless systems, including third-generation (3G) networks; fixed network engineering; and IP and data transport engineering.

According to Telcom Global’s web site, the firm has its corporate and North American headquarters in Irving, TX. A regional office in Sao Paulo, Brazil, serves Latin America, while an office New Delhi, India, handles the firm’s Asia/Pacific/India region. The web site lists planned field locations in Stockholm and Mexico City as well as other potential locations in London, Atlanta and Singapore. Telcom Global employs more than 225 professionals.

PEMSTAR To Add Development Firm

PEMSTAR (Rochester, MI) has signed an agreement to acquire Pacific Consultants LLC (Mountain View, CA), a product engineering and analysis firm that provides contract product development services. The parties expect to complete the transaction in September, subject to approval by regulatory authorities. Financial details were not released.

Within the EMS industry, there is a trend to provide OEMs with more comprehensive design services that go well beyond board layout and design. This deal is can be viewed as a textbook example that trend. PEMSTAR will obtain Pacific Consultants’ front-end design and development capabilities. The firm’s expertise includes electrical engineering and RF microwave design, finite element analysis, implantable medical devices, shape memory alloys, and flex circuitry. Pacific Consultants can also be hired as expert witnesses in materials, patents and chip packaging.

The two firms do have a prior connection. For the US Army’s Land Warrior program, the Army selected Pacific Consultants to develop a wearable computer, a voice-over-IP radio and software and to integrate peripheral components. PEMSTAR is a member of the Land Warrior consortium to create a totally wired soldier (May, p. 7).

In May, Pacific Consultants expanded operations beyond its Mountain View headquarters to open a second office, located in Pleasanton, CA.

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Canadian CMs To Merge

Publicly held AimGlobal Technologies Company, which engages in contract manufacturing through its operating subsidiary Aimtronics (Delta, BC, Canada), and Creation Technologies (Burnaby, BC, Canada), another Canadian EMS company, have agreed to merge. These former competitors know each other well. Their EMS operations are both based in the Vancouver area.

The merged company will be called Creation Aim Technologies, and based on fiscal 2001 statements, will account for more than CDN$250 million in annual EMS revenue. To be based in Burnaby, Canada, the combined company will have more than 1000 employees operating out of eight manufacturing facilities in British Columbia, Ontario and New York. Manufacturing space will total more than 350,000 ft2. The parties are promoting this merger as forming a premier mid-tier EMS provider within the North American market.

At present, Aimtronics operates three Ontario facilities in Brockville, Kanata and Mississauga; a plant in Delta, BC; and a facility in Ogdensburg, NY. The company’s web site lists the number of employees at over 800 and facility space at more than 250,000 ft2. However, AimGlobal has announced plans to close the Mississauga plant in a restructuring effort that will result in a reduction of about 200 jobs. According to a statement, the board of the new company intends to continue with the restructuring initiatives already underway at AimGlobal.

That board will consist of the six Creation directors plus two members from AimGlobal’s board. Geoff Reed, current president of privately held Creation, will become president of the new company.

Like Aimtronics, Creation maintains a facility in Mississauga, Ontario. The company also operates two facilities in Burnaby, BC, near Aimtronics’ Delta location. The three Creation plants have a total manufacturing space of about 105,000 ft2. In addition, Creation occupies a 15,000-ft2 office building and warehouse in Burnaby. The provider employs about 540 people. For Creation’s fiscal 2001 ended May 31, sales came to about CDN$113 million. The company boasts a track record of profitable growth in each of its ten years in business.

The same cannot be said of AimGlobal. For the fiscal year ended March 31, 2001, the company reported a loss of CDN$82.5 million on sales of CDN$154.2 million. The loss from continuing operations was CDN$82.6 million, compared with a loss of CDN$5.1 million in fiscal 2000. AimGlobal sold its gas monitoring and detection business in March 2000. Still, sales did increase by 47% in fiscal 2001.

According to financial statements recently filed by AimGlobal, its ability to stay in business is in substantial doubt and depends on achieving a profitable level of operations, the continued support of its suppliers and lenders, and its ability to raise additional financing and/or merge with Creation. AimGlobal’s line of credit expired in July, and the company is in violation of certain debt covenants. It is negotiating the terms of its credit line and bank loans and is seeking additional equity financing. As of March 31, the company reported an accumulated deficit of CDN$112.4 million and a working capital deficiency, including amounts owed under the credit line and bank loans, of CDN$9.4 million.

Not surprisingly, AimGlobal has undergone significant changes in management. Last month, the company reported the resignations of three directors and the president of Aimtronics. A COO of Aimtronics was hired. What’s more, AimGlobal founder Steve deJaray resigned as company chairman, CEO and president. Bohdan Hryb, a director, is acting as interim president.

Under the proposed merger, Creation shareholders will receive about 0.6 share of the new company for each Creation share held. Stockholders of AimGlobal will receive about 0.4 share of the new company for each AimGlobal share. After the combination, Creation shareholders will own about 10.2 million shares of the new entity, while AimGlobal shareholders will own about 6.8 million shares. AimGlobal will engage a third party to judge the fairness of the exchange ratio. The merger is subject to the preparation of a definitive agreement, due diligence, shareholder approval as well as court and regulatory approval.

In addition, AimGlobal has secured a private placement of about CDN$4 million in convertible debentures.

“AimGlobal and Creation have previously been strong competitors in the North America EMS industry,” states Geoff Reed, president of Creation. “We are looking forward to sharing best business practices, combining joint purchasing power and pooling our overall skills and talents to deliver even more to our customers in terms of overall efficiency and high quality competitive service.”

Creation was formed in 1991 when four partners purchased the assets of a Vancouver CM specializing in thick-film hybrids and chip and wire. Now specializing in medium-volume, high-complexity, mixed-technology PCBAs, Creation supports turnkey customers in the wireless, medical and instrumentation markets.

Through its Aimtronics subsidiary, AimGlobal serves the medical, aerospace, wireless, telecom, industrial, military and emergency services markets. Aimtronics not only offers PCBA and box build, but also proprietary microelectronics manufacturing. AimGlobal recently announced a strategic alliance for production in both China and Brazil.

In July, AimGlobal took legal action against Michel Fattouche, CEO of Cell-Loc (Calgary, Canada) in connection with manufacturing services provided to Cell-Loc. AimGlobal is claiming payment of $30.3 million.

New Player Emerges from Mitel Divestiture

Mitel Networks (Ottawa, Canada) has divested its manufacturing, distribution and repair operations, which have been combined with two other companies to form BreconRidge Manufacturing Solutions, a new EMS provider based in Ottawa. BreconRidge has obtained an exclusive three-year supply agreement from Mitel, which focuses on IP-based voice, video and data convergence.

With about 700 employees, BreconRidge has operations in the US, UK and China in addition to its Ottawa home base. Services include NPI, Far East sourcing of custom materials and manufactured products, global procurement, test development for complex products, manufacturing, order fulfillment and distribution, repair, and end-of-life support.

BreconRidge has landed another Canadian customer, DragonWave (Ottawa), for whom BreconRidge will provide all manufacturing and repair services as well as manage global order fulfillment. DragonWave is a supplier of millimeter wave radios.

The new provider resulted from combining the Mitel operations with Ridgeway Research Corp., which provides engineering consulting and Far East sourcing, and 4Test Inc., which develops application software and hardware for testing. BreconRidge is starting out with over 50 customers.

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More deals done…Lucent Technologies (Murray Hill, NJ) has closed its outsourcing agreement with Celestica (Toronto, Canada). See August, p. 6. Celestica will pay about $570 million, subject to post-closing adjustments, for Lucent’s plant and property in Columbus, OH, and the equipment and inventory at both Oklahoma City, OK, and Columbus. Also, Celestica has completed its acquisition of Primetech Electronics, an EMS provider based in Kirkland, Quebec, Canada (June, p. 4-5)….Sanmina (San Jose, CA) has concluded its acquisition of Alcatel’s manufacturing operations in Richardson, TX (July, p. 6)….ACT Manufacturing (Hudson, MA) has completed its acquisition of the Leicester, England facility of Fisher-Rosemount Systems, the process management division of Emerson (March, p. 7)….Nu Horizons Electronics (Melville, NY), a component distributor, has closed on the sale of its EMS subsidiary, Nu Visions Manufacturing (Springfield, MA), to an affiliate of Golden Gate Capital (San Francisco, CA) and to certain members of Nu Visions’ management (July, p. 7). The price was about $31.5 million, consisting of $29.5 million in cash and $2 million in subordinated debt. With a 50,000-ft2 facility, Nu Visions specializes providing high-complexity, low-volume EMS to OEMs in the defense, industrial and medical industries. According to Nu Visions, it has continued to add customers and increase revenue and profitability despite the downturn. The company says its partnership with Golden Gate Capital, a private equity firm with more than $700 million of capital under management, will give Nu Visions the financial wherewithal to achieve growth both internally and through acquisitions. Nu Horizons points out this sale has nothing to do with the downturn.

More companies in alliances…CTS Corp. (Elkhart, IN) has released more details about its alliance program designed to provide a vertically integrated solution (July, p. 2). WUS Printed Circuit Co., Ltd. (Kaohsiung, Taiwan), a high-volume PCB vendor, has joined the CTS alliance, which also includes Pentair for enclosures, PPC Electronic AG for complex PCBs, and CTS Interconnect Systems for backplanes and PCB assemblies….Elanders (Kungsbacka, Sweden), which has been a supplier of telephone manuals to Ericsson, has become a preferred supplier to Flextronics in Europe for products related to Ericsson mobile phones. In Hungary, Elanders will set up a production facility connected to Flextronics’ factory that will deliver Ericsson phones to the European market….Sparton Corp. (Jackson) has added a seventh EMS partner, Preco, Inc. ­ Morton Division (Morton, IL) to the Sparton Alliance Network….XeTel (Austin, TX) has formed a partnership with VI Technology (Austin, TX), an engineering services company specializing in automated functional test systems. VI Technology will design test systems for XeTel’s customers in networking and telecom.

Vitel Re-enters EMS Market in Southeast

After three years as a captive manufacturer, Vitel Technologies (Norcross, GA), a wholly owned subsidiary of American Megatrends Inc. (AMI), is once again offering manufacturing services to customers in the Southeastern US.

Having started contract manufacturing in 1993, Vitel in 1998 devoted all of its production to AMI and AMI’s customers. The parent company had developed a new RAID product, whose volumes precluded Vitel from supporting other customers. Now that AMI has sold its RAID business to LSI Logic, Vitel again has capacity available for EMS customers.

From 1993 to 1998, Vitel had anywhere from 30 to 40 EMS customers including Digital Transmission Systems, Hayes Modem, NCR, Scientific Atlanta, TP Systems and Yokogawa. Through association with AMI, Vitel has also manufactured computer products for Dell, Compaq, Hewlett-Packard, IBM and NEC and is also an approved manufacturing facility for Hitachi and Toshiba.

In January 2000, Vitel moved to its current Norcross location, a 78,000-ft2 facility that was refurbished for the company. The plant operates two SMT lines featuring Fuji equipment, and one is set up for continuous flow of double-sided boards. Vitel’s work force fluctuates between 200 and 250 people.

“Vitel customers receive state-of-the-art manufacturing services and extensive engineering expertise normally only provided by the larger EMS companies, but with more personalized customer service and scheduling flexibility,” states S. Shankar, founder and CEO of AMI and Vitel.

Specializing in complex SMT assembly, Vitel offers board design, prototyping, first-run builds, and low- to medium-volume production. Capabilities include component procurement, ICT testing, a functional test facility with over 200 PC-based test stations and full system build. The company’s SABLE system tracks individual boards by serial number and records quality data.

Vitel prides itself on its ability to satisfy auditors from some of the world’s most sophisticated OEMs. “Dell and NEC are very tough to manufacture for,” says Paula Fowler, Vitel’s director of sales. According to Fowler, Vitel has adopted best practices from some of the world’s largest CMs.

At present, Vitel is still assembling some boards for the RAID business under LSI, which is expected to shift production offshore. That will open up still more capacity. Meanwhile, Vitel is shopping the capacity currently available. “We’re actively quoting a number of different companies in this area,” says Fowler.

Prospective customers might ask what is to prevent parent AMI from again taking all of Vitel’s production to meet some future need. Vitel responds that the intention is to diversify the customer base into other industries besides computer. AMI, a designer of BIOS software and network storage, supplies hardware, software and utilities to the global computer market.

Philips Wants To Sell Some Plants

Reuters is reporting that Philips has been discussing the sale of mature product facilities with several companies. These factories turn out products such as standard TV sets. For example, the company makes 14-inch TVs in Poland and Mexico, according to Reuters.

This is not the first time Philips has tried to unload a TV products operation. In 1999, Philips signed a memorandum of understanding to sell an operation for assembling TV boards in Kwidzyn, Poland. The buyer was to be Manufacturers’ Services Ltd., but the deal fell through.

Meanwhile, Philips has reportedly outsourced European production of VCRs to Funai Electric Company of Japan.

New programs…Xplore Technologies has selected SMTC Corp. (Toronto, Canada) to serve as Xplore’s sole EMS provider for its rugged mobile computing systems….PEMSTAR (Rochester, MN) has won a contract to manufacture fabric and control cards for Pluris, a developer of routers for the Internet core….Boundless Manufacturing Services (Hauppauge, NY), a subsidiary of Boundless Corp., will manufacture optical and copper cable assemblies for DataWorld Solutions and acquire associated inventory and equipment. The two companies also intend to sign a joint marketing agreement, and DataWorld will move to Boundless’ headquarters. Boundless will offer cable assembly to other customers as well….Viasystems Group (St. Louis, MO) will produce the electronics for Village Networks’ optical packet node. Village Networks (Eatontown, NJ) will assemble optical components, integrate them with electrical components, and perform final testing….Sunrise Technologies International (Fremont, CA), has outsourced the manufacture of a system for treating farsightedness to C-MAC Industries (Montreal, Canada). Last month, Sunrise was scheduled to sell inventory and transfer all manufacturing labor and support to C-MAC, which will produce the system at C-MAC’s Fremont operation. Sunrise has developed laser-based systems for correcting ophthalmic refractive conditions….Group Technologies (Tampa, FL) has been awarded a General Services Administration contract for engineering services, worth an estimated $20 million over five years….Celerity Systems (Knoxville, TN) has qualified IES (Gray, TN) as a second manufacturer for a digital set top box….The Manufacturing Services Division of Scan-Optics (Manchester, CT), an imaging and information management company, has received a contract to manufacture a print scanner for Howtek. Scan-Optics will also provide spares and depot repair support for the Howtek Graphic Arts products.

New facilities added despite the downturn…In July, the San Diego, CA subsidiary of SMTEK International (Thousand Oaks, CA) moved into a newly built facility of 45,000 ft2, more than twice the size of the 17,000-ft2 facility formerly occupied in San Diego. Also, in Moorpark, CA, the company has begun refurbishment of a 115,000-ft2 building, which will house operations and headquarters currently located in Thousand Oaks. The transfer of operations is scheduled to occur about midway through fiscal 2002 ending in June 2002….Also in July, it was reported that Singapore-based Venture Manufacturing began production from two maquiladoras in Tijuana, Mexico. With a combined area of 330,000 ft2, the two facilities are being used for assembly and warehousing of HP laser printers.

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Turmoil at Elcoteq

The year 2001 has been unkind to most EMS companies. But it has been especially cruel to Elcoteq Network (Espoo, Finland), the largest EMS provider based in Europe. Not only must the company deal with lower demand levels and the loss of Ericsson mobile phone business in Europe, but now must cope with the resignation of Elcoteq’s president and the absence of its chairman.

Early last month, Elcoteq announced that its president, Tuomo Lahdesmaki, had resigned. No reason was given. The company appointed Hannu Bergholm, who had run his own consulting business, as interim president. Bergholm’s previous experience includes serving as corporate controller of Kone and Nokia. Elcoteq’s board of directors has begun the search for a new president.

Unfortunately, the board is temporarily without the leadership of its chairman, Antti Piippo. Late last month, Piippo removed himself from board duties following an incident in his private life and the publicity that resulted. Police are investigating the matter.

“In that incident, guests who behaved inappropriately were removed from my summer house. This unfortunate incident is entirely part of my private life. However, since my private life and chairmanship of Elcoteq’s board seem inseparable to outsiders, I feel that under these circumstances it is my duty to refrain from the board work,” Piippo said in a statement.

“As regards the incident, I am fully convinced I did right,” he stated. Piippo said he would not take part in board activities until results are in from the police investigation.

In the wake of Lahdesmaki’s resignation, the board’s Working Committee has taken a more active role in operational matters, according to Elcoteq. But for the time being, that committee, which consisted of Piippo and two group VPs, will not have Piippo’s services. Vice chairman Juha Toivola will assume Piippo’s duties during his absence.

When the Elcoteq’s 2000 annual report was issued, Piippo owned 23.7% of its shares and 44.7% of the voting rights.

Elcoteq reported Q2 sales of 441 million euros, 8% below Q1 sales, and a Q2 loss of before extraordinary items and taxes of 13.8 million euros. That compared with a loss of 0.7 million euros in Q1. In Q2, the company wrote off about 7 million euros for non-current materials, resulting from errors in the supply chain. Elcoteq remained responsible for some material orders made for growth that failed to materialize.

Six-month sales of 922.3 million euros were 1% less than the year-earlier figure of 934.8 million euros. Ericsson and Nokia together accounted for 84% of sales in the first half of the year. Elcoteq expects its full-year sales will be lower than last year.

More plants being converted to NPI…Converting a volume manufacturing plant into an NPI center has become increasingly popular as providers restructure. Elcoteq’s plants in Lohja, Finland, will shift from high-volume manufacturing to serving as an Engineering Services and NPI Center. The same goes for Elcoteq’s site in Überlingen, Germany….The MATCO Electronics Group (Vestal, NY) will begin to transform its U.S. Assemblies Raleigh (NC) facility from a medium-volume plant to a Technology Center, focused on NPI and low-volume manufacturing. “We have strategically shifted our approach with the Raleigh plant to support the wide base of OEM engineering design facilities in the Carolina region,” states, Jim Kane, executive VP at MATCO.

Solectron expands executive team…Solectron (Milpitas, CA) has named seven new company officers, who have all received promotions. William Mitchell has become executive VP and president, Solectron Global Services, while George Moore, has gained the title of executive VP and president, Solectron Systems Solutions, a new role for him. Moore had been corporate VP and president, Solectron Americas. Massued Behrouzi has moved up to senior VP and president, Solectron North America from corporate VP and president, Solectron Americas Western Region. The company has promoted Philip Fok to senior VP and chief administrative officer and Alejandro Gomez-Montoy to senior VP and president, Solectron Latin America. Also, Sen-Yuan (Sandy) Ro has risen to senior VP and GM, Solectron Systems Solutions, while Joe Tang has been promoted to senior VP and managing director, Solectron Asia/Pacific.

In addition, Solectron has appointed eight existing company officers as executive VPs. Kiran Patel, who just joined the company as senior VP and CFO, has been named executive VP and CFO. His experience includes 27 years at engine manufacturer Cummins, where he ended up as executive VP and CFO. Patel is taking over financial and legal duties from Susan Wang, the company’s longtime CFO. Wang has become executive VP, corporate development, responsible for long-range planning and new business development. Other officers adding executive VP to their title are Kevin Burns, chief materials officer; David Kynaston, president, Solectron Europe; Chester Lin Chien, president, Solectron Asia/Pacific; Daniel Perez, named as executive VP, worldwide account management and marketing; Ajay Shah, president, Technology Solutions; and Saeed Zohouri, COO.

More people on the move…ACT Manufacturing (Hudson, MA) has hired Narendra “Pat” Pathipati as executive VP and CFO. He joins ACT from Acadio Corp., an e-learning company, where he was president and COO. Before Acadio, Pathipati held various senior financial executive positions at Weirton Steel. Also, Kenneth Owens has returned to ACT as COO for North America. He joins the company from Danaher Corp., where he was GM of a business unit within the Danaher Motion Group. From September 1992 to September 1995, Owens served as VP of operations at ACT….Viasystems Group has promoted James Powers to senior VP and CFO, replacing David Sindelar who took over as CEO (July, p. 8). Powers had been executive VP of business development….Mike Cox has been named GM of Flextronics Photonics in Europe. Cox, a veteran of Nortel, is well known in the optical manufacturing world….Joseph Zackman has been named president of CDR Manufacturing, a CM based in Somerset, KY. He has been in the EMS industry for several years, most recently with Sanmina. Also joining CDR as production manager for its Somerset facility is Bradley Turner, who most recently served in the manufacturing group for Mid-South Electronics….Visiontek (Gurnee, IL) has hired Russ Pallesen as executive VP of mergers and acquisitions. He comes from Vision Capital Partners, a venture capital and merchant banking firm in Chicago.

New board members…Celestica has appointed two new board members: William Etherington, IBM senior VP and group executive for sales and distribution, and Michio Naruto, chairman of ICL and special representative and former vice chairman of Fujitsu….Manufacturers’ Services Ltd. has elected Dermott O’Flanagan to its board. He is the former president of Dovatron International, whose parent company, The Dii Group, was acquired by Flextronics.

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Copyright 2001 JBT Communications

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MMI August 2001

MMI October 2001