MMI April 1999
Vol. 9, No. 4: April 1999
Table of Contents
Vendor-Managed Inventory: Coming To a Warehouse Near You
Vendor-managed inventory (VMI), also known as supplier-managed inventory (SMI), has quietly made its way into the EMS industry. Although this supply-chain trend has received little or no fanfare, VMI introduces a new paradigm for materials management, the lifeblood turnkey EMS.
In the electronics industry version of VMI, suppliers ship parts to a warehouse that feeds a manufacturing facility nearby. The warehouse is typically operated by a third-party logistics provider. Suppliers own the parts until the manufacturer withdraws them for production. Under a VMI program, suppliers agree to maintain a certain amount of buffer inventory in the warehouse.
VMI and build-to-order (BTO) manufacturing go hand in hand, a fact already demonstrated by Dell Computer. “We’re getting tremendous pressure from our customers to do build to order versus build to plan. And the only way to do build to order is you either have some inventory on hand or you drive that kind of requirement for flexibility down to your supply base,” says Andrew Gort, senior VP of supply chain management for Celestica.
Celestica has chosen the latter. The EMS provider recently unveiled its SMI program, which will rely on global warehousing and distribution services from Expeditors International, a logistics company based in Seattle, WA.
Likewise, Solectron has undertaken a demand pull-based VMI model encompassing the three tiers of the supply chain — customers, Solectron and suppliers. Customer forecasts are used to drive materials and capacity, while consumption is based on demand. For example, enough components are shipped to Solectron to undertake the next build, which is triggered by end customer demand for finished product.
What’s more, Solectron and Celestica are not alone in their pursuit of VMI. Other companies among the largest EMS providers are involved. “Certainly in some fashion or other, five of the top eight have requested participation in vendor managed inventory,” says Michael Bruno, global director of the CEM Market Segment at Philips Semiconductors.
“It’s a trend we’re going to see very quickly over the next 12 months,” says Aaron Simms, worldwide account manager for contract manufacturers at Molex. He adds, “The large contract manufacturers are very quickly moving to the point where they’re managing inventory on a daily basis.”
But so far, only Celestica has provided any detail about the workings of a VMI program in the EMS industry. Celestica is using Expeditors’ warehouses as logistics hubs for both inbound and outbound material. On the inbound side, Celestica is focusing its SMI program on higher value items such as PC boards, monitors, keyboards, cables and chassis as well as higher priced semiconductors and specialty connectors. “We can’t do this for low-cost parts because a hub does cost money,” says Celestica’s Gort. The parts buffer will fluctuate typically between one and two weeks of material, depending on the part and the demand.
An outbound hub allows Celestica to take over order fulfillment for a customer and perform an in-transit merge of material from other suppliers. Such hubs can also provide buffer stock of prebuilt generic subassemblies from which a customer can draw to meet upsides in its BTO production.
Expediters has developed software that lets Celestica and its suppliers see warehouse inventory through web access. The software also gives Celestica and its customers visibility of material stored for them in outbound hubs.
VMI is a good deal for the large EMS companies in several ways. The parts supplier, not the contract manufacturer, pays the cost of freight to the warehouse. The supplier, not the CM, is responsible for the cost of carrying the inventory in the warehouse. Security and auditing of buffer inventory also fall to the supplier. What’s more, the CM typically assumes no liability arising from cancellation or rescheduling of that inventory.
One could argue that supplier margins were never intended to absorb the costs of VMI. “The bottom line is there will be additional cost. The key is how you manage the cost,” says Simms of Molex.
Despite the cost issue, the largest providers are in the driver’s seat. They have purchasing clout to insist on VMI, and the current availability of components puts suppliers at a disadvantage. But component shortages in the future could jeopardize VMI programs. “Unless it’s a win-win, when inventory tightens up that’s not going to last,” says Gort of Celestica.
To make VMI more palatable, Celestica works to minimize the difference between what it pulls and what it asks suppliers to stock. “That’s why the forecast piece is important,” says Gort. He also points out that since buffer inventory absorbs swings in Celestica’s demand, the supplier can level load its production to replenish the buffer. Not only that, if a supplier’s delivery were to fall short one day, the buffer will cover up the shortfall.
Celestica can also dangle a big carrot in front of a supplier looking for a competitive advantage. “Once we start to rely on programs like this, we’re a lot less likely to migrate from one supplier to another supplier,” says Gort. “Plus we’re really pushing pretty hard with our OEM customers to make sure these suppliers are specified in their AVL.”
Reportedly, VMI programs in the EMS industry typically require two to four weeks of inventory in the warehouse with 30% to 50% upside, depending on the provider.
Supplying a single VMI program is one thing; supporting a number of programs is quite another. “There are limited economies of scale in dealing with ten different guys in ten different ways,” says Bruno of Philips Semiconductors. So Philips’ CEM organization has come up with a VMI-like option called the Virtual Warehouse, which allows Philips to leverage its infrastructure while offering 48-hour delivery of certain components without forecasts from contract manufacturers.
To create the Virtual Warehouse, Philips has set aside a portion of its Memphis, TN, warehouse to stock components such as standard logic and standard discrete devices. Instead of relying on CMs’ forecasts to load the Virtual Warehouse, Philips will use its knowledge of the market and its OEM customers as well as a statistical model developed internally. The company has used that model to forecast demand for its factories. “So we’re using that tool to actually complete the product as opposed to just filling the pipeline,” says Bruno.
This month, Philips started up a pilot program in North America with a few EMS customers. The company plans to extend its Virtual Warehouse offering to Asia and Europe.
Celestica Makes Two Moves in New England + One in Central Europe
Within the span of less than two weeks, Celestica (Toronto, Canada) has announced two outsourcing agreements in New England and an acquisition in Central Europe.
First, Cabletron Systems, a networking company based in Rochester, NH, has signed a letter of intent to outsource substantially all of its manufacturing to Celestica. Second, Celestica has reached an agreement in principle to acquire Hewlett-Packard’s Andover, Massachusetts, Surface Mount Center, the PCBA operation of HP’s Medical Products Group. Finally, based on yet another new agreement, Celestica will take over the Czech manufacturing operation of Gossen-Metrawatt Gmbh, a test and measurement company headquartered in Nuremberg, Germany.
As for Cabletron, it will close its Ironton, OH, plant and consolidate North American manufacturing into its Rochester, NH, facility. When the deal goes through, Celestica will occupy the Rochester facility temporarily until operations can be moved to Celestica’s new Portsmouth, NH, facility, now under construction. That 200,000-ft2 building is due to be finished in Q1 2000 (Mar., p. 6).
According to Cabletron, the outsourcing agreement will save the company potentially over $50 million in the first year.
“It’s a real testimony to the outsourcing model that they can achieve those kinds of efficiencies,” says Eugene Polistuk, Celestica’s president and CEO. “When you think of them as a billion-and-a-half-plus player, it’s very hard for them to have the competitive scale. But by teaming up with a tier-one EMS provider, it gives them a lot of advantage.”
Celestica will provide Cabletron with a full spectrum of services under a long-term supply agreement. “So we’re talking about box build, PCAs, repair. They will have very little infrastructure left,” says Polistuk. “This is like taking the model to its extreme.”
According to Polistuk, Celestica expects to gain about $300 million a year in sales from Cabletron. That revenue would place Cabletron among Celestica’s top 12 customers at this time, he notes.
Although Celestica is not acquiring any facilities, it will buy certain manufacturing assets from Cabletron for approximately $60 to $80 million in cash. Among these assets are some 14 to 15 SMT lines. The deal is due to close in the current quarter.
Cabletron manufactures not only in New Hampshire and Ohio but also in Limerick and Shannon, Ireland. Polistuk reports Celestica will take over “essentially all” of Cabletron’s U.S. manufacturing. Cabletron says it will retain ownership of its manufacturing operations in Ireland.
“The decision to outsource manufacturing reflects a fundamental shift in our historic management philosophy,” states Cabletron CEO Craig Benson.
Indeed, within the networking industry Cabletron had been famous for its reliance on in-house manufacturing. That strategy ran counter to the outsourcing practices of competitors such as Cisco Systems.
The Cabletron deal will further Celestica’s efforts to increase its communications business — datacom and telecom — to 35-40% of revenue. In 1998, about 18% of sales came from communications.
Also in New England, Celestica will acquire HP’s Surface Mount Center in Andover, MA. As part of this deal, HP will be expanding its existing outsourcing agreement with Celestica.
The provider will obtain an operation specializing in low-volume, high-mix board assembly for HP medical products. Celestica will lease the operation’s 26,000-ft2 facility, which houses 125 employees and six SMT lines.
This deal will give Celestica a location close by Route 495, where a technology belt has formed in Massachusetts. Celestica will also expand its service offerings in the medical products sector. The HP deal becomes Celestica’s second major medical win this year.
All employees at the Andover center will be offered jobs with Celestica. The transaction is expected to close in the next few months.
In addition, Celestica intends to move the operation to a larger facility within a 15-mile radius of the Andover location.
Achieves Central Europe Goal
Celestica has also made good on its promise to expand operations into Central Europe. An agreement with Gossen-Metrawatt will allow Celestica to acquire the European company’s facility in Rájecko, near the Czech Republic’s second largest city of Brno.
Under the terms of this deal, Celestica will enter into a long-term supply and cooperation agreement with Gossen-Metrawatt. All employees at the Czech operation have been offered positions with Celestica.
Celestica is buying the operation’s 50,000-ft2 building and associated land along with other assets including two SMT lines. This deal also includes the right to acquire adjoining land.
The provider plans to attract other customers to the ISO 9000-certified facility, which has PCBA capability for products such as computers, printers, test and measurement devices and cellular telephones. This facility was set up in 1992.
Gossen-Metrawatt is a subsidiary of The Röchling Group, a German conglomerate.
Sanmina Acquires Manu-Tronics
Sanmina (San Jose, CA) has added another company to its recent string of acquisitions (Mar., p. 7). This month, EMS provider said it acquired Manu-Tronics, a private EMS company in Kenosha, WI. Sanmina exchanged shares of its stock for Manu-Tronics shares, and the deal will be accounted for as a pooling of interests. No details were released. However, on SEC form S-3 Manu-Tronics shareholders registered 749,998 shares of Sanmina stock obtained in the sale.
“The acquisition of Manu-Tronics expands Sanmina’s geographic reach and manufacturing capacity,” states Jure Sola, Sanmina’s chairman and CEO. “By establishing a presence in this key Midwest region, we are better able to service existing customers while aggressively seeking new business opportunities in the greater Chicago areas and elsewhere in the Midwest.”
Manu-Tronics is located 40 minutes north of Chicago’s O’Hare International Airport and adjacent to Interstate 94, linking Chicago with Milwaukee and the Twin Cities. The company is completing the expansion of its Kenosha facility from about 80,000 ft2 to nearly 200,000 ft2.
Roger Mayer, founder and president of Manu-Tronics, will continue to run Kenosha operations. Mayer believes that “Sanmina’s stature in the electronics manufacturing services industry will provide us with needed critical mass.” He adds, “We were also impressed with the commitment of Sanmina to the growth of our operations and to our people here in the Kenosha area.”
Broadview Int’l. LLC (Fort Lee, NJ), a global IT investment bank, brought the two parties together. “Sanmina was looking for a presence in the Midwest. We suggested Manu-Tronics to them. They were not aware of the company,” says Robert McNamara, a Broadview managing director. Broadview, which assists clients with mergers and acquisitions, restructurings and private financings, represented Sanmina in the deal.
Meanwhile, Sanmina intends to consolidate its corporate headquarters and San Jose area assembly operations into a 300,000-ft2 campus facility in San Jose.
Viasystems Buys EMS Company
If there was any doubt about Viasystems Group (St. Louis, MO) being a player in the EMS business, that uncertainty is now gone. Viasystems, one of the world’s largest PCB fabricators, just acquired PAGG Corp., a privately held contract manufacturer in Milford, MA.
Timothy Conlon, president and COO of Viasystems, says the acquisition “enables Viasystems to provide a more complete solution to our customer demands for value-added assembly capabilities.”
Viasystems’ value-added work has included backplane assemblies.
PAGG’s capabilities in preproduction, system build and integration, and volume manufacturing complement Viasystems’ strength in backplanes and fabricated boards, according to Ed Price, founder of PAGG and now VP and GM of the newly acquired site.
This deal is presented as adding to Viasystems’ Value-Added Assemblies & Services unit. No terms were disclosed.
Viasystems was formed in 1996 by Hicks, Muse, Tate & Furst and Mills Partners.
Solectron To Purchase Trimble Assets
Also opens NPI center in Japan
Trimble (Sunnyvale, CA), which develops products enabled by GPS (global positioning system) technology, has signed a letter of intent to sell its Sunnyvale manufacturing assets to Solectron (Milpitas, CA), which will take over manufacturing of Trimble’s GPS and related RF technology products. Trimble had previously stated its intention to use contract manufacturing (Feb., p. 4).
This outsourcing deal, however, will not affect Trimble’s operations in Austin, TX, where the company manufactures business and commercial aviation products and military products.
“As a result of this partnership, Solectron will enter the rapidly growing GPS market and significantly expand our global RF design and manufacturing expertise,” states Dr. Ko Nishimura, Solectron’s chairman, president and CEO. “Our intent is to integrate the Trimble operation into our existing California campus within six to 12 months, to leverage efficiencies and resources.”
Solectron expects to offer jobs to about 250 Trimble employees affected by this outsourcing. The provider will acquire assets including manufacturing and test equipment and inventory and begin manufacturing for Trimble in a 85,000-ft2 building leased on the Trimble campus.
Trimble says it plans to leverage Solectron’s purchasing power and manufacturing efficiencies to lower production costs.
This proposed deal includes a three-year supply agreement. Solectron intends to provide Trimble with services spanning the product life cycle including design consultation, prototyping, management for new production introduction, and volume board and systems assembly.
Trimble recently gained more depth in contract manufacturing with the hiring of Patrick Hehir as senior VP and chief manufacturing officer. Hehir joined the company from Dovatron International, where he worked eight years in positions that included executive director of operations and VP of worldwide business development.
In other news, Solectron’s latest new product introduction (NPI) center has opened its doors just outside of Tokyo, Japan. According to Solectron, it becomes the first U.S.-based EMS company to establish a manufacturing presence in Japan.
This move “confirms Solectron’s commitment to our Japanese customers and to this strategic marketplace,” states CEO Nishimura. A manufacturing presence in Japan also gives Solectron’s multinational customers access to that market for design and quick-turn prototype services.
The company estimates demand in the Japanese market to be $18.3 billion for 1999, based on data from market research firm Technology Forecasters (Alameda, CA).
The 20,000-ft2 center contains three SMT lines and will employ 54 people initially. Set up to offer a full range of premanufacturing services, the center will specialize in high-mix, low-volume board and backplane assembly; complex low-volume, high-mix systems assembly; and supply-base management.
Solectron has been in Japan since 1992, when it established a program office in Fujisawa. Later relocated to Tokyo, the office will work closely with the new NPI center to service Japanese OEMs.
The company says it had been looking for some time to make such a move when “this unique opportunity came up.”
EFTC Closes First Phase of Largest Deal
EFTC Corp. (Denver, CO) has closed the first of its proposed transactions with Honeywell’s Commercial Avionics Systems (CAS) unit. Together, these transactions are expected to produce more than $100 million a year in revenue for EFTC starting next year. The firm says this is its largest deal to date.
In the first phase, EFTC has acquired assets and about 200 people associated with the Glendale, AZ, card assembly operation of Honeywell’s former Business and Commuter Aviation Systems (BCAS). This acquisition was announced earlier as a letter of intent (Mar. p. 9), which has been expanded to include Honeywell’s former Air Transport Systems (ATS) business and a facility in Tijuana, Mexico. Over the next several months, the two parties intend to hammer out definitive agreements for these two ac-tivities. Honeywell consolidated ATS and BCAS into CAS earlier this year.
“We competed with very well known companies in this industry for this transaction, and I do believe that this validates the high-mix focus and specialization that we’ve been concentrating on for the last couple of years,” said Jack Calderon, EFTC’s chairman and CEO, in a conference call with analysts.
Along with the BCAS operation, EFTC has obtained a ten-year agreement to supply Honeywell with cards used in CAS avionics. This ten-year duration goes well beyond industry norms for OEM supply agreements.
EFTC will move the BCAS operation to a newly leased facility of 100,000 ft2 located on Bell Road and I-17 in the Phoenix metro area. Over the next several months, the provider will equip the facility and prepare for production later this year. The company also plans to transfer the ATS card assembly operation to this new facility. What’s more, some work being done by other EMS providers will be consolidated to EFTC starting in Q4 and on into the first half of the year 2000.
The new facility will become EFTC’s Southwest Commercial Operation, complementing its Tucson, AZ, facility, which specializes mil-spec products.
In Tijuana, EFTC is looking at a facility of roughly 30,000 ft2 used by Honeywell for card assembly primarily and for some wire harness work. This card assembly supports Honeywell’s aviation business. The Tijuana facility will become EFTC’s Mexico Operations, offering low-cost solutions for certain mature, high-mix products. The two companies are working on obtaining 40,000 ft2 of expansion space in Tijuana.
For the BCAS transaction, EFTC was slated to buy about $2.5 million in assets and intellectual property. Later in the year, the company will acquire about $11 million in BCAS inventory, once the business is ready for turnkey operations. EFTC intends to handle the ATS and Tijuana operations in similar fashion.
EFTC anticipates that the Honeywell business will be accretive to analysts’ estimates for the year 2000 by about 15 to 20 cents.
Another OEM divestiture…World Access, a telecom service and equipment company, has sold its Alpharetta, GA, manufacturing operation to U.S. Assemblies in Georgia, a subsidiary of The MATCO Electronics Group (Vestal, NY). MATCO, a privately held EMS provider, bought World Access’ manufacturing equipment and hired about 50 of its employees. In addition, MATCO assumed the lease for 38,000 ft2 out of a total of 53,000 ft2 in World Access’ Alpharetta facility. World Access says selling the operation eliminates the need to invest in facilities, equipment and inventories and reduces the risk of operating losses during periods of low production. This is the company’s second such deal with MATCO. Last year, MATCO bought manufacturing equipment from World Access’ Telco Systems subsidiary in a program that World Access describes as “extremely successful.” Although terms were not disclosed, World Access will use cash proceeds from the sale to pay off a bond obligation of about $7 million. World Access previously said reorganization of the company would result in outsourcing (Feb., p. 4).
Dii in Set-Top Programs for China and Europe
Also lands automotive contract
Under a new strategic partnership with Capetronic International Holdings Ltd. (Hong Kong), The Dii Group (Niwot, CO) will manufacture set-top boxes in China for delivery of up to 180 movies per year, data and educational materials to the mandarin Chinese-speaking market. What’s more, Dii’s contract manufacturing subsidiary, Dovatron International (Longmont, CO) has won a new contract to supply set-tops to Pace Micro Technology plc (Shipley, UK) for distribution in Europe. Together, the two set-top programs could generate revenue of $200 million in the year 2000, according to some estimates.
Plus, UT Automotive (Dearborn, MI) has selected the Dii Group to develop and manufacture computer system platforms for UTA’s deltaVIEW line of in-vehicle computing products based on Microsoft Windows CE.
In the Chinese venture, Dii will invest $15 million in Capetronic’s preferred stock. In return, Dii will have the exclusive right to manufacture the majority of the venture’s set-top boxes and to direct production of the remainder to other contract manufacturers. This is a seven-year arrangement. In addition, Ronald Budacz, Dii’s chairman and CEO, will join Capetronic’s board.
Dii expects to start volume production in Q4 and anticipates that this program will become a top-five revenue producer for the year 2000. The company has received a letter of intent for the first 500,000 units from one of about 120 cable TV operators identified as potential customers in China. Dii plans to manufacture both analog and digital set-top boxes in its vertically integrated campus in Zhuhai, China.
In a conference call, Dii said that $100 million in year 2000 revenue, reportedly projected by some analysts, “is a very reasonable number.”
With this set-top program, Dii asserts that it will lead the top 25 multinational contract manufacturers in two categories. “The Dii Group will now become the largest in China in terms of physical presence and supply of product to the local China market,” declares Dii’s Ronald Budacz.
The program will also put Dii in an unusual position for an EMS company. Rather than taking on work from an OEM, Dii will be the one to outsource. “As order volumes for the project begin to exceed our planned plant capacity allocation, Dii will participate in the selection of other local manufacturing partners,” states Budacz. Dii intends to continue to provide capacity in China for its OEM customers.
Dii and Capetronic have obtained exclusive distribution rights from the Ministry of Culture’s China Audio and Video Publishing House. According to Dii, the ability to digitally transmit movies in China has not been authorized until now. First-year plans include service delivery in Singapore, Taiwan and Hong Kong as well.
Under the European contract for set-top production, Dii’s Dovatron subsidiary will assemble boards for Pace receivers at Dovatron’s facility in the Czech Republic. Dii says the result should be a significant increase in output over the next 12 months from the Czech facility, newly certified to ISO 9002. Dovatron’s facility in Ireland will perform final assembly and test for the digital set-top boxes. This new program will start up immediately, with full volume production expected by the end of Q3. Pace is an existing customer of Dovatron.
“Contract wins such as this contrib-ute to our expectation that Dovatron will achieve an organic growth of 30 percent in fiscal 1999,” states Thomas Smach, Dii’s CFO. “We believe Dovatron’s production for this European contract could amount to $100 million in fiscal year 2000.”
Finally for the UT Automotive contract, the Dii Technology Center team located at Dovatron’s Binghamton, NY, site is providing engineering support, schematic capture, PCB layout, PCB fabrication, prototype development, box build, and final functional test. The team is also supporting field programmable gate array conversions to ASICs.
UTA says this integrated solution will enable it to reduce the product development cycle and will help the company meet an aggressive new product introduction schedule.
More new programs…VA Research Linux Systems (Mountain View, CA) has chosen Flextronics International (San Jose, CA) as VA’s EMS provider. Flextronics will manufacture VA’s Linux workstation and server product lines requiring volume production, while VA plans to continue manufacturing high-end workstations with four- and eight-way processors as well as customized servers. To supply VA, Flextronics will create a build-to-order plant within its San Jose facility. Orders from VA will be transmitted online to Flextronics, which will custom build and test the systems and ship directly to customers in a cycle of three to 14 days. This BTO plant will be replicated in Mexico, Singapore and Hungary. “With demand for Linux systems exploding, VA selected Flextronics because of its reputation for mass producing quality products such as WebTVs, Palm Pilots and Cisco routers, states Dr. Larry Augustin, VA’s president and CEO. He also cited Flextronics’ global reach and purchasing power….Proxim (Mountain View, CA) has selected CMC Industries (Santa Clara, CA) as its primary EMS provider for high-volume manufacturing of its Symphony Cordless Networking Suite, a product line for wireless networking. CMC will provide full product integration, test and pack-out. The provider has targeted an IT market mix of communications, telecom and wireless….Netcore Systems (Wilmington, MA) has chosen Solectron as its strategic manufacturing partner to produce the Everest Integrated Switch, billed as the world’s first terabit switch/router. The two companies have worked together starting with the initial design of the switch and have made the transition from prototype mode to a production process. Solectron will provide a range of services through system integration of major product modules, while NetCore will perform final product assembly and system testing at its facilities. Brocade Communications Systems (San Jose, CA) has become another Solectron customer. Solectron will manufacture the Brocade SilkWorm family of fibre channel switches and provide configure-to-order capabilities. Solectron also serves as manufacturing partner for Gobi Inc. (New York, NY), which provides a Solectron-made PC to subscribers of its Internet access service. Gobi expects to ship over one million computers this year.
Still more new programs…Legend Holdings Ltd., a Hong Kong-listed firm, has selected Nam Tai Electronics (Vancouver, Canada) to manufacture Legend’s “Tian Ji” 1000 palm-sized PC, reportedly the first such product to be developed and designed by a PRC company. Legend has signed an agreement with Microsoft to preinstall Chinese Windows CE. “Nam Tai’s experience in consumer electronics product manufacturing, our advanced facilities, and our high quality standards helped secure our assignment to manufacture Legend’s Tian Ji 1000 product,” comments Tadao Murakami, Nam Tai’s chairman. “Nam Tai’s Original Design Manufacturing department is also developing a more advanced model with added features. We believe that this project demonstrates our strength in both product development and manufacturing capabilities and signals Nam Tai’s entry as an OEM/ODM manufacturer for consumer electronic products in the China market.” Nam Tai manufacturers in China….Prime-tech Electronics (Montreal, Canada) has landed the second phase of Newbridge Networks’ turnkey initiative. In the first phase, Primetech undertook a pilot program last fall to supply selected products on a turnkey basis. The success of that first phase has led to the second phase, which involves more products and an accelerated conversion from consignment to turnkey. Newbridge, a global networking company, has been a Primetech customer since 1988….Imaging Technologies (ITEC) of San Diego, CA, a supplier of digital imaging products, has signed a letter of intent to outsource work to InCirT Technology (Irvine, CA), a subsidiary of Pen Interconnect. With a potential value of $10 million in annual revenue, this agreement is the largest of its type in the history of Pen. Under the agreement, Pen will provide turnkey manufacturing and logistics support for ITEC’s color and monochrome printers and color printer controller boards. Other new business for Pen includes a combined $4 million in contracts from Alaris Medical and Xtend Micro Products. With this business, InCirT has booked over $19 million in a three-week period, raising Pen’s annual run rate above $30 million.
Mexico Drawing More Than High Runners
MTI Electronics (Menomonee Falls, WI) has moved its contract manufacturing operation in Guadalajara, Mexico, to a new 42,000-ft2 facility, which is about 65% larger than the old plant. This news, on its face, is nothing out of the ordinary for Guadalajara. Except that this operation serves a class of OEMs not usually associated with outsourcing in Mexico.
“The demand from companies for medium volume-medium mix in Guadalajara continues to grow,” states Greg Martinek, MTI’s president and CEO. “OEMs come down here and see firsthand that the infrastructure in Guadalajara is far superior to that of any other city in Mexico for low-cost electronics manufacturing. However, many of them soon realize that their business model does not quite fit with the high volume-low mix model of the tier-one CMs located in Guadalajara. This has created opportunities for us, and we see nothing but a continuation of that.”
MTI plans to add two more SMT lines before the end of the year. This relocation represents the company’s third move into larger facilities since starting up in Guadalajara in 1996.
New design center…Plexus Corp. (Neenah, WI) plans to open a DesignCenter near Boulder, CO, in May to expand its product development, sales and marketing efforts. Located in Louisville, CO, the 14,000-ft2 center will offer engineering services such as analog, digital, PCB, firmware and mechanical design. “We lead with our engineering in terms of our expansion,” explains John Nussbaum, president and COO of Plexus. Dean Foate, Plexus Technology Group president, states, “Engineering facilities expansions have been, and will continue to be, located in high quality-of-life areas that attract a qualified technical resource pool. Locating near Plexus customer bases, education centers and transportation hubs are important factors that help us accelerate our sales growth.” The center will start out with eight to ten engineers from Plexus headquarters.
Other expansion projects…Jabil Circuit (St. Petersburg, FL) expects a 125,000-ft2 addition to its Guadalajara, Mexico, facility will be available for production in May. The company has also purchased 50 acres of land for a new campus in Boise, ID. Construction is scheduled to start in early spring, and the site should be ready for occupancy by the end of the year. Also, a 60,000-ft2 headquarters build-ing going up in St. Petersburg should be completed by the fall….Solectron has leased 66,000 ft2 of additional space adjacent to its 107,900-ft2 West-borough, MA, facility. The provider plans to triple its work force there from 600 to 1800 people within two years. The facility serves as Solec-tron’s East Coast center for low- to medium-volume, complex PCB assembly and as an NPI center….Sparton Electronics Canada, a subsidiary of Sparton Corp. (Jackson, MI), will expand its EMS operation in London, Ontario, by adding another high-speed SMT line and doubling the manufacturing area within the 58,000-ft2 Canadian facility….LeeMAH Electronics (San Francisco, CA) plans to open its seventh plant in the San Francisco Bay area in June. The 44,000-ft2 building in Fremont, CA, will employ an estimated 500 to 600 people when up and running. This plant will be dedicated to PCB assembly, as are three other facilities.
SCI’s King To Step Down as CEO
Company warns Wall St.
Olin King, long-time chairman and CEO of SCI Systems (Huntsville, AL), will relinquish his CEO position at the end of the quarter. King recently turned 65. The company says its board intends to name A. Eugene Sapp, currently president and COO, as CEO effective July 1.
King says it has long been his intention to step down on June 30, the end of SCI’s fiscal 1999. He plans to remain chairman of the board.
Sapp, who joined SCI in 1962, has been president and COO since 1981.
Meanwhile, SCI warned that revenue and EPS for its March quarter are expected to miss Wall St. consensus estimates by “upper single digit percentages.” The company says revenues have been primarily affected by market conditions in the PC product area and Europe. In addition, devaluation of Brazil’s currency has created an impact of about eight cents on EPS, reports SCI.
Nevertheless, recent contract wins for 1999 production along with other new business will create a shortage of floor space at several SCI locations during coming quarters, particularly in low-cost countries such as Mexico and Hungary. As a result, the company has initiated a series of expedited projects to build preplanned additions to several new plants.
Company restructuring…Under a new restructuring plan, Smartflex Systems (Tustin, CA) is streamlining its operations worldwide, resulting in a layoff of about 220 employees, or about 23% of employment at its recent peak. The company has reorganized in relation to its recent acquisition of Tanon Manufacturing (Dec.’98, p. 4 and Feb.’99, p. 5) and has moved certain support services from its Tustin, CA, and Singapore facilities to sites in Monterrey, Mexico, and Cebu, Philippines. In addition, the Monterrey facility has been sized to match current demand.
Other company news….The electro-mechanical CM that resulted from the merger of EMS and RSP is now called EM Solutions (Dec.’98, p. 3)….Eltech Electronics (Singapore) showed a net loss of S$3.6 million on sales of S$128.0 million for 1998.
Late news…Flextronics intends to purchase Ericsson’s Visby, Sweden, operations, used primarily for radio base station manufacturing.
Correction: After publication of last month’s MMI Top 50 list, MMI has discovered that the 50th company on the list, Aimtronics, should not have been included. The company reported sales in Canadian dollars and included nonEMS revenue. As a result, the 50th company should have been LaBarge with a reported $99.3 million in EMS sales.
Copyright 1999 JBT Communications