MMI August 1999

Vol. 9, No.8: August 1999


Table of Contents

Cover Story

Five Providers Win in First Round of Nortel Divestitures

Initial Results of Nortel’s Outsourcing Strategy (table)

SCI Lands $1-Billion Package

C-MAC and Sanmina Split Electromechanical Group

CTDI Gets Repair Operations

BC Work Goes To UTTC

News

GET Will Put Jabil in China

MSL To Acquire Philips Operation in Poland

SMTC Gains Zenith Operation in Mexico

C-MAC To Bid for LG Technologies

More deals done

Deals not done

IBM Outsources Server Boards to Solectron

Other new programs

Century Files for IPO

Other financial news

Q2 and First-Half 1999 Results for 18 EMS Providers (table)

Some other financial results

Facility expansions

Y2K update

Recent certifications

Company news

EMS industry suppliers in the news

Industry news

People on the move

More people on the move


Five Providers Win in First Round of Nortel Divestitures

Nortel Networks has picked five service providers to participate in the first phase of its three-year global restructuring program announced in January. The communications company will outsource work from a dozen operations and sell assets from 11 of them (see table, p. 2). Nortel has selected SCI Systems (Huntsville, AL) to take over an electronics package involving three Canadian operations. Operations in electromechanical subsystems design and manufacturing have been split between C-MAC Industries (Montreal, Canada) and Sanmina (San Jose, CA). Nortel will sell four repair operations to Communications Test Design, Inc. (West Chester, PA), also known as CTDI. And manufacturing assets from a Nortel operation in British Columbia will go to United Tri-Tech Corp. (Cornwall, Ontario).

Earlier in May, Nortel had identified operations in 10 locations for divestiture and an 11th activity for divestiture or outsourcing (May, p. 2). Of the 11 operations, Nortel will sell eight intact to service providers. Two others will be shut down, with assets and production to be transferred to providers. But at St. Laurent, Quebec, instead of divesting electromechanical assembly as originally presented, Nortel will sell SMT assets. The current announcement also includes a 12th operation in Lachine, Quebec, not identified earlier, where electromechanical outsourcing will occur with associated employees going to the St. Laurent facility.

Nortel expects supply agreements with the five providers to total more than $1 billion in value for the first year of the agreements. The company estimates that gross proceeds from the divestitures will be about $400 million, subject to price adjustments. Contingent on customary conditions and regulatory approvals, the transactions are due to close in Q3 or early Q4.

The service providers have agreed to employ about 2300 of the 3000 employees affected by these divestitures. Of the remaining 700, about 500 will lose their jobs in the two Canadian locations where Nortel will stop manufacturing. In January, the company said about 8000 employees would be affected by its three-year operations strategy. When Nortel revealed details behind the strategy in May, it said about 4000 employees, including 3000 associated with divestitures, would see an impact from that announcement. That leaves 4000 employees, or about half of the original number, still unaccounted for. As a result, it is widely believed that Nortel is not finished with outsourcing and divestitures, and that one or more announcements are yet to come.

“By leveraging the best-in-class capabilities that are now available externally, we will be able to direct our internal resources to those specialized skills that continue to offer us competitive differentiation and that are not easily found outside the company. Those skills include new product introduction, systems and network integration, and systems testing,” states Chahram Bolouri, Nortel VP of global operations.

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SCI Lands $1-Billion Package

The electronics package that SCI will acquire from Nortel is expected to eventually generate on the order of $1 billion in annualized revenue for SCI.

SCI has entered into an agreement to purchase Brock Telecom Ltd., a wholly owned Nortel subsidiary that operates a 454,000-ft2 facility in Brockville, Ontario, Canada. Some 1250 employees in Brockville will join SCI, which expects that work force to grow to about 1500 by the end of the year. The Brockville facility will become SCI’s second largest plant.

The EMS company will also buy certain electronics manufacturing equipment in Nortel’s Belleville, Ontario facility and two SMT lines in its plant in St. Laurent, Quebec. SCI will move the work load from Belleville and St. Laurent primarily to the Brockville facility and also to SCI’s existing plant in Pointe-Claire, Quebec, outside Montreal. But SCI will not be taking on employees from Belleville or St. Laurent. In Belleville, Nortel will cease PCB assembly with the loss of 370 jobs. SCI will give affected employees first consideration for new jobs it creates in Brockville.

“We…viewed this particular opportunity with Nortel as the prime prospect for this company and also viewed it as the prime opportunity out of all those they would be divesting themselves of, primarily because of the size of the project, but also because of the nature of the products to be manufactured,” said A. Eugene Sapp, SCI’s president and CEO, in a conference call with analysts.

SCI anticipates that after a transition period the Nortel program will reach full run rate by fiscal Q4 ending June 2000. “By that time, we would expect that the [Nortel] revenues in Q4 to represent something on the order of a one-billion dollar annualized run rate,” said Sapp during the call. According to Sapp, SCI’s electronic package was larger than the other two packages — electromechanical and repair — that Nortel presented.

As part of a multiyear supply agreement, SCI will provide Nortel with PCB assemblies, many of which are related to the Internet and to broadband multimedia com-munications. The provider will also manufacture for some of Nortel’s traditional carrier products. According to SCI, PCB assemblies to be supplied by the company represent leading technologies that will be used in some of Nortel’s most advanced products and systems.

Sapp indicated that the duration of this supply agreement is longer than the usual three years for agreements of this type.

One benefit of this deal will be to increase the telecom share of SCI’s sales. For the end of fiscal 1999, Sapp said telecom was “certainly no less than 15 [percent] but probably not more than 20 [percent]” of SCI’s business. He suggested, “The Nortel acquisition alone should allow us to take telecom to at least 30% of our overall business, that is, if we don’t leverage that relationship to attack the telecom market, which everyone expects to grow very rapidly in the next few years. So this is the first in what we would hope to be a number of steps in the direction of balancing our business between the various segments.” He added that this deal will go along way toward dispelling the misconception that SCI is just a computer company.

While SCI has not released the terms of this deal, Sapp revealed the company will be paying “approximately twice the book value of the assets we will be taking over.” He added, “We know for a fact that we were not the high bidder. We don’t know what the high bidder bid. But we know that we were selected because Nortel wanted to do business with us and that we gave them a fair price.” Later in the call he noted that SCI has built a good relationship with Nortel as a strategic partner supplying boards to Nortel for the last two to three years. SCI’s plant in Pointe-Claire, Quebec, has been a Nortel supplier. “The thing that probably contributed to our success in this particular transaction as much as anything was our overall performance in support of them,” said Sapp.

That SCI was willing to pay a premium for these assets should not come as a surprise to those who follow the company. Earlier this year, Sapp told Thomas Weisel Partners’ EMS conference that SCI would be more aggressive regarding acquisitions (May, p. 11).

Established in 1953, the Brockville operation was purchased by Nortel in 1990 and made a wholly owned subsidiary of Nortel under the name Brock Telecom. Brock Telecom’s primary customers consist of other Nortel locations within Public Carrier Networks, Broadband, Wireless and Enterprise Networks lines of business. According to Brock’s web site, its product portfolio ranges from PCB assemblies to business applications telephones and terminals, small mechanical assemblies such as magnetic tape drives, test equipment, and data transmission products. Capabilities include complete systems build and configuration. Also, Brock’s manufacturing engineering teams provide new product development services in support of other Nortel locations.

Brock’s employees in production are unionized through the Communication, Energy and Paperworkers of Canada. “The union situation there seems to be a quite workable one, and there have been no disruptions of work. There have been no real problems with the union,” said Sapp. He noted that the stability and success of the Brockville operation were one of the reasons SCI focused on it.

In the call with analysts, SCI provided some guidance as to how this deal will affect the bottom line. “It would not be unreasonable to expect something on the order of 20 to 30 cents a share for this business in its first full year of operation,” said Sapp.

“Other Nortel divestitures and outsourcing activities are expected…and that will happen in several months,” Sapp commented. “It’s important to note…that SCI will not be precluded from further participation in those activities.”

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C-MAC and Sanmina Split Electromechanical Group

Nortel proposes to divide a package of electromechanical subsystems design and manufacturing operations between C-MAC Industries and Sanmina. C-MAC will get electromechanical assets associated with Nortel’s carrier business, while Sanmina will acquire similar assets related to Nortel’s wireless business. Before final agreements are reached, there will be a period of consultation with employee representatives in Europe.

C-MAC will acquire electromechanical assets involved in Nortel’s operations in Monkstown, Northern Ireland, and will hire the associated employees. Nortel also intends to enter into a supply agreement with C-MAC. In May, Nortel designated Monkstown as the location of one of its seven global systems houses, which will link the elements, both internal and external, in Nortel’s supply chain.

Nortel also intends to outsource to C-MAC the electromechanical subsystems currently assembled in Nortel’s Lachine, Quebec facility. Affected employees will be redeployed to a nearby facility in St. Laurent, another systems house location. Also, C-MAC will employ the majority of electromechanical subsystem designers associated with carrier products and will supply Nortel with electromechanical design services related to those products.

C-MAC estimates that this transaction could produce more than $250 million in annual revenue.

This is C-MAC’s second move this year to expand its electromechanical operations. In January, the company acquired a sheet metal house, R & M Metaltek, with a plant in Canada and the U.S. C-MAC has rapidly grown its sales of enclosures and value-added services (June, p. 2).

But the Nortel deal is not the only one C-MAC is involved in. The company intends to launch a take-over bid for LG Technologies Group (see article on p. 6).

For the first six months ended July 3, the Canadian-listed company posted earnings of Cdn$15.8 million on revenue of Cdn$501.2 million. Nortel is by far C-MAC’s largest customer.

Meanwhile, Sanmina has entered into agreements to acquire wireless electromechanical manufacturing operations in Calgary, Alberta, and Chateaudun, France. Both operations are associated with Nortel systems houses. The EMS provider will obtain system manufacturing equipment, inventory and 230 employees between the two locations. In addition, Sanmina will gain an engineering design group of eight people in Guyancourt, France. The provider will supply Nortel with electromechanical design services related to its GSM wireless products.

“This transaction includes a group of superb manufacturing operations that will enhance our already solid working relationship with Nortel Networks and expand our international business opportunities in both Canada and Europe,” states Jure Sola, Sanmina’s chairman and CEO. “Nortel Networks’ Calgary-based wireless group complements our existing Calgary operation and positions Sanmina as a leader in RF technology electronics manufacturing. The Chateaudun, France electromechanical assembly operation, which also focuses on wireless technology, will provide Sanmina with a flexible assembly operation in Western Europe.” He add that the Guyancourt-based design group will strengthen Sanmina’s position in telecom engineering and design.

Last year, Sanmina established wireless capabilities in Calgary when it acquired a plant there from a wireless division of Harris Corp. (Mar., p. 7).

Besides the Nortel deal, Sanmina has signed three additional manufacturing agreements with OEMs who have divested some manufacturing operations. Sanmina estimates that together these four deals will generate over $200 million in annual revenue. The company expects these transactions to help accelerate its revenue growth rate to over 40%. Sanmina’s goal is to reach $5 billion in sales by 2003.

One of the additional OEMs is Evans & Sutherland, whose small-scale divestiture was covered here last month (p. 4). The other two OEMs are Electroglas and Motorola. The three agreements included purchase of inventory, test and assembly equipment as well as a three-year EMS contract.

MMI’s Take

Both Sanmina and C-MAC are among the most vertically integrated EMS providers. For example, both can manufacture their own bare boards, backplanes and backplane assemblies. With electromechanical capabilities, the two are in a position to control the both the enclosure and its contents (June, p. 5). That’s an advantage, especially for bulky telecom products where the enclosure usually is not shipped around. Hence, you find electromechanical operations closely supporting systems facilities, as in the case of Nortel. And the electronics and other subassemblies travel to the enclosure, rather than the other way around. So the maker of large enclosures potentially sits high up on the supply chain. Both C-MAC and Sanmina are demonstrating that enclosure suppliers do not have that field to themselves.

CTDI Gets Repair Operations

Under agreement with Nortel, Communications Test Design, Inc. (CTDI), a private telecom services company based in West Chester, PA, will purchase four Nortel operations in repair and repair logistics and supply Nortel with those services. The operations are in Mississauga, Ontario; Nashville, TN; Sunnyvale, CA; and Richardson, TX. According to CTDI, this deal will make it one of the largest independent external service providers in telecom repair.

CTDI will offer jobs to affected employees in the four operations. In the Mississauga facility, voluntary ways to reduce the work force will be explored, in keeping with CTDI’s business model. That facility will be operated by CTDI’s Canadian subsidiary, Communications Repair Logistics, which will support Nortel’s Canadian and selected international customers. For CTDI’s worldwide Nortel repair activity, the Canadian subsidiary will also serve as a hub for technical resources.

[Note: In the May issue of MMI, the Mississauga facility was incorrectly listed as a manufacturing and repair operation.]

CTDI and Nortel have worked together in the past. That includes a 1994 technical information agreement under which CTDI repairs Nortel’s DMS equipment for U.S. customers.

“The ability to expand our Nortel Networks test and repair capabilities to include additional network and enterprise products will bring significant value to our ‘one-stop’ repair customer base,” states Jerry Parsons, CTDI’s president and CEO.

The revenue expected from this deal was not disclosed. One estimate put repair revenue at less than $70 million a year and probably between $50 and $60 million.

With some 25 years of experience in the telecom industry, CTDI can repair over 17,000 different voice and data products. The company employs 2500 people in 21 facilities worldwide and follows a strategy of bringing its repair and logistics capabilities as close to its customers as possible. About 60% of CTDI’s revenue comes from repair, its core business. Customers include all the regional Bell operating companies and most of the major wireline and wireless carriers, as well as major telecom OEMs. CTDI operates four divisions: Repair; Supply, which involves new and used equipment; Engineering/Installation; and Wireless.

BC Work Goes To UTTC

Nortel plans to sell the assets of its Burnaby, British Columbia, manufacturing operations to United Tri-Tech Corp., a private Canadian CM based in Cornwall, Ontario, and to outsource production from the Burnaby facility to UTTC. Under the terms of a supply agreement that the parties will enter into, UTTC will supply the associated products from its Lethbridge, Alberta, facility. As a result, Nortel will stop manufacturing in Burnaby, and 140 jobs will be cut.

UTTC operates EMS facilities in both Cornwall and Lethbridge.

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News


GET Will Put Jabil in China

Jabil Circuit (St. Petersburg, FL) intends to enter China via acquisition. The EMS provider has signed a nonbinding letter of intent to acquire GET Manufacturing, a privately held EMS provider with headquarters in Mountain View, CA, and a large portion of its manufacturing capacity in China.

In the process, another player will disappear from the mid-tier of the EMS industry (July, p 1).

Jabil will pay a purchase price of $250 million in its common stock. The deal is expected to be accounted for as a pooling of interests and to close by August 31. According to Jabil, the deal “is not expected to be materially accretive to earnings in the first year.”

“The acquisition of GET provides Jabil an immediate and very solid foundation in China, satisfying an important strategic objective of our company. Additionally, GET has 30 years of profitable operations in China, a solid customer base without overlap to Jabil’s, a complete product assembly competence including a substantial injection molding infrastructure, and a management team focused on quality execution,” states Tim Main, president of Jabil.

In mainland China, GET manufactures in three locations — Shenzhen, Dan Shui and Panyu — with a total of more than 800,000 ft2. Much of GET’s high-volume manufacturing takes place at these three sites. Having established its first site in China in 1985, GET became an early practitioner of contract manufacturing in Southern China.

The company also operates manufacturing facilities in Hong Kong; Tijuana, Mexico; and Mountain View, CA. These three facilities added to the three sites in mainland China give GET close to one million ft2 of production capacity. The company employs about 5000 people.

For 1998, GET reported sales of $201 million, of which 90% came from box build. According to the company, it has a strong balance sheet with little debt and a history of profitability.

GET customers include Braun-Thermoscan, Lexmark, Lucent Technologies, Plantronics and Xerox in North America; Alcatel, Esselte, Philips and Vision in Europe; and Seiko and Sharp in Asia. GET focuses on six market segments: telecom, internetworking, office equipment, medical instruments, computer peripherals and industrial controls.

According to Jabil, China is forecasted to be the largest national market for telecom and other important sectors over the next four years. “We believe that possessing an outstanding capability in China will be key to fully exploiting these opportunities in the years to come. Acquiring GET gives us the outstanding capability we need, immediately, in a low-risk way,” states Main.

In China, it’s one thing to produce for export. It’s quite another to manufacture goods for the domestic market under government permits. “Certain GET operations are appropriately permitted to produce for the domestic market,” reports Jabil.

“This is truly a strategic, win-win move for all involved,” says Roger Nordby, GET’s president and CEO. “GET customers gain increased worldwide services and flexibility. GET employees gain the additional growth opportunities that a larger company can offer. Additionally, Jabil gains an established manufacturing presence in China. We couldn’t be happier.”

Jabil anticipates a high retention rate of current management.

GET was founded in Hong Kong in 1960 as General Electronics, Ltd. In 1996, the company was restructured by Chairman Shin (Samuel) Fang and adopted its current name. The following year, GET acquired sites in Mexico and California. In 1998, Roger Nordby, a former Packard Bell/NEC executive, became president and CEO.

In January of this year, GET told MMI that it was looking at putting design services and manufacturing into Europe and hoped to go public in 18 months (Jan., p. 8). Jabil, of course, will provide GET with a European presence.

Jabil has facilities in Scotland and Italy and expects to have operations established in Central Europe in 2000.

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MSL To Acquire Philips Operation in Poland

Manufacturers’ Services Ltd. (Concord, MA) has signed a memorandum of understanding to acquire a high-volume PCB assembly operation in Kwidzyn, Poland, from Philips Consumer Electronics.

The proposed deal will give MSL its first site in a low-cost manufacturing region referred to as both Eastern and Central Europe. Kwidzyn is located in north-central Poland.

MSL plans to occupy more than 100,000 ft2 within Philips’ Polish campus that produces TVs for the European market. The two parties are negotiating a supply agreement by which MSL would produce PCB assemblies for Philips TVs made in Poland. This agreement is expected to generate an annual run rate of $100 million+ for MSL. About 500 Philips employees will join MSL.

Within Central Europe, Hungary and the Czech Republic have been the most popular destinations for EMS providers. But MSL had its reasons for choosing Poland. “First and foremost, this is an expansion of a relationship with a blue-chip customer that we’re really excited to do business with in a big way,” explains Mac Blythe, MSL director of marketing.

“Poland itself is a very cost effective location adjacent to Germany and the rest of Western Europe and Northern Europe,” Blythe points out. Next to Russia, Poland also has the largest population in Eastern Europe. “With a rising standard of living, Poland itself will be a good market for domestic consumption of PCs, peripherals, telecom products and consumer products and is cost effec-tive for export to Western Europe,” adds Blythe. He also reports, “Poland has a healthy indigenous PC and consumer products infrastructure.”

Still, MSL is keeping its options open. “This doesn’t preclude further expansion into other Eastern or Central European countries at a later time,” says Blythe.

“We’ve built our company by identifying strategic operations and successfully integrating their strengths and capabilities into ours,” states Kevin Melia, MSL’s CEO. “The operation’s skilled and dedicated team and established efficiency will give us a significant competitive advantage in this major market.”

The deal is expected to be finalized by October, subject to regulatory approval in Poland. Terms were not disclosed.

According to MSL, it is on track to achieve sales of $1 billion this year. The company now employs over 4000 people.

SMTC Gains Zenith Operation in Mexico

SMTC Manufacturing (Toronto, Canada) has acquired a manufacturing operation in Chihuahua, Mexico, and a logistics center in El Paso, TX, from Zenith Electronics. The Chihuahua facility focuses on production of high-volume digital set-top boxes and satellite receivers. The two companies have also entered into a long-term supply agreement. SMTC will offer jobs to all 600 employees affected by this deal.

Situated on a 16-acre campus, the Chihuahua operation contains 250,000-ft2 of manufacturing space and will have seven SMT lines in operation initially to support the transition of new and existing SMTC customers to the facility. SMTC plans to invest immediately in additional capital and facility upgrades. The site has the potential for an additional 300,000 ft2.

“We are very excited with the prospects of this facility. Their proficiency in the manufacture and test of digital products will immediately attract new business opportunities,” states Ed Johnson, executive VP of new business development at SMTC.

According to Zenith, this deal will permit full utilization of the Chihuahua facility and continued manufacture of its digital set-top boxes.

Paul Walker, SMTC president and CEO, comments, “Beyond our supply agreement with Zenith, the Chihuahua site accelerates our planned expansion into cost-effective geographies. With such strong depth in manufacturing, materials and logistics, we can instantly offer our existing and future customers a very well established, cost-effective center within the SMTC enterprise.”

Privately held SMTC resulted from the recent merger of The Surface Mount Technology Centre and Hi-Tech Manufacturing (July, p. 2).

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C-MAC To Bid for LG Technologies

C-MAC Industries (Montreal, Quebec), a diversified manufacturer and an EMS provider, intends to launch a take-over bid for all of the common stock in LG Technologies Group (Laval, Quebec), a contract manufacturer on both the electronic and electromechanical side. The two companies are publicly traded in Canada.

C-MAC proposes to purchase LG’s stock by issuing C-MAC common shares in an amount to be determined by a formula using a 10-day weighted average of closing prices for C-MAC stock. On August 6 when the take-over bid was announced, the purchase would have required about 1,257,000 C-MAC shares, which represented a purchase price of Cdn$4 per share of LG. If the weighted average is less than Cdn$33.25, C-MAC has the right to terminate the offer. C-MAC has entered into a lock-up agreement with LG’s principal shareholder to deposit shares representing about 38.8% of the outstanding stock.

For the fiscal year ended Oct. 31, 1998, LG recorded sales of Cdn$45.6 million, up 25% from the prior year. Net profit was Cdn$109,000 before a goodwill writedown and losses from discontinued operations.

LG lists five target markets in its annual report: telecom, computer systems, transportation, medical instruments and industrial equipment. In fiscal 1998, LG landed a five-year contract from Nortel for Internet communication elements. The contract was valued at Cdn$150 million.

Meanwhile, C-MAC has completed the acquisition of SR Telecom’s facility in Kanata, Ontario, and signed a five-year agreement to supply SR Telecom with its wireless local loop line of products (June, p. 10). What’s more, Nortel selected C-MAC as one of five providers to participate in a series of divestitures (see p. 3).

More deals done…ACT Manufacturing (Hudson, MA) has completed its merger with CMC Industries (Santa Clara, CA). (See May, p. 6.) Based on about 3.9 million shares that ACT expected to issue, the stock deal was worth about $60 million on July 29 when completion was announced….Trimble (Sunnyvale, CA) and Solectron (Milpitas, CA) have reached a definitive agreement whereby Solectron will assume manufacturing responsibility for Trimble’s global positioning system and related RF technology products for the next three years. The deal was proposed earlier (April, p. 4). On Aug. 16, Solectron will acquire certain assets including manufacturing and test equipment and inventory, and will take over manufacturing in 55,000 ft2 of leased space on Trimble’s Sunnyvale campus. Solectron intends to move this operation into its Milpitas campus within six to 12 months. The provider has offered jobs to about 250 Trimble employees….Nam Tai Electronics (Hong Kong and Shenzhen, China), a consumer electronics CM, has set up a new telecom division, Nam Tai Telecom (Hong Kong) Co. Ltd., resulting from an acquisition in Korea. The NT Telecom division develops, produces and sells high-frequency wireless products and will give Nam Tai the necessary licenses to sell its 900 Mhz cordless phones in Europe….On the electromechanical side of outsourcing, Applied Power (Butler, WI) has notched yet another acquisition for its electronics enclosure business (June, p. 3). The company’s APW Electronics segment acquired certain assets of Connector Technology, Inc. (Anaheim, CA), a backplane manufacturer….Elamex (Cd. Juarez, Mexico), which offers electronic, electromechanical and mechanical contract manufacturing, has acquired Precision Tool, Die & Machine Co., a metal stamping company in Louisville, KY. Precision’s major customers include General Electric, Whirlpool, Trane and Johnson Controls. Elamex paid $20.3 million in cash for privately held Precision, whose sales for the fiscal year ended June 1998 were $54.6 million. Also Elamex has signed a letter of intent to sell its 51% stake in OptiMag, a start-up in automated optical inspection, to Veeco Instruments.

Deals not done…Solectron’s proposed acquisition of Glenayre Technologies’ RF manufacturing facility in Quincy, IL, has fallen through (May, p. 7-8). The two companies have ended negotiations regarding that deal. Glenayre president and CEO, Eric Doggett, stated, “After extensive study and negotiations, we have determined that the proposed agreement was not a good fit. Glenayre will continue, however, discussing other possible areas of collaboration with Solectron and other outsourcing suppliers.”…Regarding Cabletron’s letter of intent to outsource substantially all of its manufacturing to Celestica, the transaction as originally announced did not close. (See April, p. 2-3.) Celestica (Toronto, Canada) still has a relationship with the New Hampshire-based networking company.

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IBM Outsources Server Boards to Solectron

IBM and Solectron and have signed a letter of intent calling for Solectron to take over worldwide new product introduction (NPI) and manufacturing for PCB assemblies produced by IBM in Greenock, Scotland, for its Netfinity servers. Volume PCB assembly services will be transferred to Solectron’s global operations.

The companies plan to start moving assets as soon as possible following the necessary government notification. Six SMT lines, specialized manufacturing and testing equipment, and inventory will be transferred from IBM’s Greenock operations to Solectron. Financial details were not disclosed.

Under the proposed agreement, Solectron will provide PCB assembly services including early prototyping, new product launch, assembly and test, end-of-life support and life-cycle management for the next three years. The company will also supply IBM with NPI management through a new NPI center to be located in the Greenock area and operational by the end of the year. Solectron plans to begin its NPI operation there with about 65 IBM engineers and related support people, as well as certain assets including equipment and inventory from the IBM Greenock PCB assembly facility.

The letter also covers intellectual property rights associated with design and manufacture of PC server motherboards.

Solectron established a presence in Scotland in 1993 by acquiring Philips Electronics’ circuit assembly operations in Dunfermline. The facility has grown to 228,000 ft2 with more than 1000 employees.

Other new programs…General Instrument has selected Flextronics International (San Jose, CA) as a global strategic manufacturing partner. Flextronics will manufacture satellite TV set-top terminals for General Instrument’s Satellite Broadcast Network Systems unit (San Diego, CA). Production will take place in Flextronics’ newly expanded industrial park in Guadalajara, Mexico. Also, the provider’s Product Introduction Center in San Jose will provide support services including functional test and development, board layout and new product development. …Adaptive Broadband (Sunnyvale, CA) has contracted with Solectron to manufacture Adaptive’s AB-Access broadband wireless service equipment. Adaptive has a contract, initially valued at $100 million over five years, to provide equipment for wireless Internet access in residential buildings across 48 U.S. cities….BancBoston Robertson Stephens (San Francisco, CA) reports that Jabil Circuit announced Fore Systems as a new customer at the investment bank’s Electronic Manufacturing Products & Services Conference last month….Under a new manufacturing agreement, EFTC (Denver, CO) will provide card and assembly and box-build services to the Aviation Division of AT&T Wireless. The project involves products related to the network control of air phones and will begin at an estimated value of $2.0 million. EFTC’s Northwest Operations in Newberg, OR, will manufacture the majority of the products….Due to pending order volume, ChatCom (Chatsworth, CA) has inked an outsourcing agreement with Qual-Pro, a CM in Carson, CA. The deal also provides additional financing for ChatCom, until the company is ready to do a secondary offering….GES International, which is publicly traded in Singapore, has begun initial production of an Internet access device for MeterNet….During the quarter ended July 2, Elamex added three new turnkey customers involving board-level products for consumer use, system-level build for power management products and system-level build for an audio product. New accounts signed this year are expected to surpass a $15-million annualized run rate within the next 12 months….Group Technologies (Tampa, FL), a subsidiary of publicly held Sypris Solutions, has entered into a manufacturing agreement with Raytheon’s Command Control Communications Segment. GroupTech will produce card assemblies used by Raytheon, an existing customer, in satellite communications systems for the U.S. Department of Defense. This contract is valued at $59.4 million through 2003….Nam Tai Electronics and Legend recently signed a contract expanding their relationship to include joint R&D of new products. Legend had selected Nam Tai for the manufacture of a palm-sized PC. Also, following the addition of a new, well-known customer in Japan, Nam Tai expects its Japanese sales of electronic dictionaries to reach about 1.4 million units, an increase of 50% this year….APSCO International, an EMS provider in Perry, OH, and Lincoln Electric of Cleveland, OH, have entered into a manufacturing agreement, whereby APSCO will produce board assemblies for Lincoln’s new PowerWave welders and Multi-Weld System. The EMS provider expects that Lincoln will be a top-three customer next year. APSCO was acquired last year by Morgenthaler Partners, a private-equity investment firm with offices in Cleveland, OH, and Menlo Park, CA. APSCO’s sales exceeded $45 million for 1998, and its operations take place in an 80,000-ft2 facility. The company describes itself as Ohio’s largest EMS provider.

Century Files for IPO

Century Electronics Manufacturing, an EMS provider based in Marlborough, MA, has filed with the SEC for an initial public offering of 4 million common shares. The company expects the offering price to be between $8 and $10 per share. The underwriters — Advest, J.C. Bradford and Needham & Co. — have an over-allotment option of 600,000 shares.

Century focuses on the manufacture of complex, high-density electronic assemblies and products in low-to-medium volumes. Services range from product design to final product assembly and order fulfillment as well as depot repair, and capabilities include RF manufacturing and testing. Century serves OEMs primarily in communications and networking. Among its customers are Nortel Networks, Motorola, Lucent Technologies and 3Com. Products manufactured include cable modems, wireless phones, telecom and networking switching equipment, two-way radio equipment, and imaging products.

The provider operates EMS facilities in Marlborough, MA; Santa Clara, CA; Boca Raton, FL; Hemel Hempstead, UK; and Bangkok, Thailand. EMS facility space totals 251,000 ft2. In addition, a 45,000-ft2 operation in St. Albans, UK, performs mechanical design and metal forming and processing.

Last month, Century acquired Amitek Corp., an EMS company in Boca Raton, FL, for a total purchase price of about $27 million, subject to adjustment. Amitek’s sales in 1998 amounted to $45.2 million.

With Amitek’s results added in, Century’s pro forma sales for the nine months ended March 31, 1999, totaled $121.1 million, and pro forma net income was $1.5 million. For the fiscal year ended June 30, 1998, the two companies together would have shown a net loss of $11.2 million on sales of $107.0 million.

Century will use the net proceeds to pay about $30.7 million in debt obligations and for working capital and general purposes, including possible acquisitions.

The provider was once a majority-owned subsidiary of Centennial Technologies, a company that went through a 1997 accounting scandal involving its CEO at that time. Following the scandal, Century separated itself from its former parent company.

As of June 30, Century had 835 full-time employees, including Amitek.

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Other financial news…Solectron has priced its public offering of 16 million common shares at $64.25 per share for a value of $1.03 billion. Underwriters have an over-allotment option of 2.4 million shares. The company intends to used the proceeds for additional working capital, capital expenditures, acquisition financing and other purposes. Merrill Lynch was lead manager for the offering, and BancBoston Robertson Stephens, Banc of America Securities and Thomas Weisel Partners acted as co-managers….Benchmark Electronics (Angleton, TX) has sold $75-million worth of 6% convertible subordinated notes due 2006. Proceeds will be used for purposes including working capital and the funding of a portion of the purchase price of Benchmark’s acquisition of AVEX Electronics (July, p. 1)….Bloomberg News reports Celestica will receive incentives, including tax holidays, from the Czech government as a result of an investment in the country.

Some other financial results…For the first half of the year, NatSteel Electronics Ltd. (Singapore) reported net profit of S$43.6 million, up 63% from the year-earlier period, and revenue of S$1.53 billion, an increase of 77%. Motherboards and PC peripherals contributed about 72% of NEL’s total sales. Its ECS Holdings group of distributors, acquired toward the end of last year, represented 4% of revenue….In fiscal Q3 ended June 30, Primetech Electronics (Montreal, Canada) recorded sales of Cdn$29.4 million, up 34% from the same period a year ago. Net income from continuing operations was Cdn$2.9 million, compared with Cdn$1.8 million a year earlier. The Canadian-listed CM earned net income of Cdn$6.7 million on sales of Cdn$68.3 million in the first nine months of fiscal 1999….SigmaTron International (Elk Grove Village, IL) posted net income of $1.7 million on sales of $88.2 million for its fiscal year ended April 30. Net income and sales were up 223% and 3% respectively from the prior year….For fiscal Q3 ended June 30, Pen Interconnect (Irvine, CA) reported sales of $5.1 million, compared with $2.8 million for the previous quarter. Pretax profits were $46,567, versus a $2.5-million loss in the previous quarter. Pen says this is the first time in four quarters that it has reported profitable operations. The company divested two noncore divisions in early 1999 to focus on its contract manufacturing and power supply businesses. Pen says it is on target to show fiscal 1999 sales above $19 million as compared with $12.2 million from continuing operations in fiscal 1998. The company recently purchased two additional high-speed SMT lines….Pub-licly held Nortech Systems (Wayzata, MN) intends to sell both its Imaging Technologies Division and medical service bureau and will focus on its contract manufacturing operations. For the first half of the year, Nortech’s continuing operations produced net income of $630,542 on sales of $18.9 million, which also represented sales of the company’s Contract Manufacturing group. The group’s sales grew 7.3% over the first half of 1998. Nortech manufactures wire harnesses, cable and electromechanical assemblies as well as PCB and higher-level assemblies….K-Byte Manufacturing (Tampa, FL), the EMS subsidiary of distributor Reptron Electronics, brought in Q2 sales of $36.8 million, up 13% from the year-earlier quarter, and gross profit of $3.5 million, up 12%….For the quarter ended July 3, K*TEC Electronics (Sugar Land, TX), the contract manufacturing unit of distributor Kent Electronics, grew sales by 34% year over year. K*TEC accounted for 27% of Kent’s $205.2 million in total sales for the quarter. Manufacturing services amounted to 52% of manufacturing revenue.

Facility expansions…Eder Industries, an EMS provider in Oak Creek, WI, recently enlarged its facility from 40,000 ft2 to 75,000 ft2 and has increased the number of SMT lines to four, of which three combine chip shooting and precision placement. This hardware includes a new combination Fuji CP643 and QP242 line as well as automated optical inspection equipment and an HP 3173 in-circuit test system. Eder operates as a unit of APW Electronics within Applied Power….Nam Tai Electronics plans to construct a 160,000-ft2 Phase II facility on its Shenzhen, China campus before the end of 2000. The company has budgeted $15 million for the project. Nam Tai’s software engineering operation, Shenzhen Namtek (Shekou, China), is moving to a larger 4300-ft2 office and will increase to 35 software engineers by the end of the year.

Y2K update…Three independent consultants have confirmed Solectron’s assessment that to the best of its knowledge, its internal systems and business processes are Y2K compliant. “The company has taken a Malcolm Baldrige quality approach — thorough and comprehensive — in planning for the year 2000,” states Dr. Ko Nishimura, Solectron’s chairman, president and CEO. The company estimates its Y2K program will cost from $35 to $42 million….Sanmina (San Jose, CA) has released a Y2K statement indicating that to the best of the company’s knowledge, its internal business and manufacturing systems are Y2K compliant. The company has entered the final testing phase of its Y2K program….NatSteel Electronics has joined at least five other EMS providers in the High Tech Consortium — Year 2000 & Beyond, an organization formed to reduce the impact of Y2K on the high-tech industry (July, p. 8).

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Recent certifications…It is believed that Jabil Circuit is among the first EMS providers to be certified to QS-9000 Third Edition, the current version of the automotive industry’s quality standards. This certification applies to Jabil’s Michigan facilities, which support the auto industry. With two more plants certified to ISO 9002, the company has nine of its 11 plants ISO-certified. What’s more, Jabil has undertaken a program to certify all of its plants to the environmental standard ISO 14000 by the end of 2001. In April, Jabil’s Scotland plant became its first facility to pass assessment criteria for ISO 14000 certification….WKK Technology Ltd. has achieved QS-9000 certification for its manufacturing site in the Shajing District of Guangdong, China. WKK reports it is the first company in electronic assembly to be awarded QS-9000 certification by the Hong Kong Quality Assurance Agency. Earlier this year, WKK’s facility gained BABT (British Approvals Board for Telecommunications) approval, which certifies compliance with a European Union directive for a quality system in the production of telecom terminal equipment….Quality Contract Manufacturing (Flowery Branch, GA) has also achieved BABT approval. Qualcon says it is the first EMS provider in the state of Georgia to obtain this approval….Flash Electronics (Fremont, CA) is another EMS company to receive BABT approval recently. In addition, Flash has been certified by TUV, a European Union body that provides product testing and certification for electrical and mechanical safety and electromagnetic compatibility….Amistar Manufacturing Services’ facilities in San Marcos and Anaheim, CA, have received ISO 9002 certification. AMS is a division of publicly held Amistar Corp., a maker of board assembly equipment.

Company news…Last month, Orient Semiconductor Electronics Ltd. (Kaohsiung, Taiwan) opened Sparqtron Corp., OSE’s first EMS operation in North America. Located in Fremont, CA, Sparqtron is also the first international site for OSE’s Finished Product Group, the company’s contract manufacturing unit. The Sparqtron facility contains 32,000 ft2 with two SMT lines. OSE projects that Sparqtron will generate sales of NT$450 million (about $14 million) in 2000. The new operation is targeting customers in networking, telecom, the PC sector, computer peripherals. OSE recruited Eddy Liu, an EMS veteran with more than ten years of experience in Taiwan and the U.S., to serve as president of Sparqtron. The company offers a range of PCB assembly services as well as system integration and testing. OSE says it will integrate Sparqtron, its Taiwan factory and its manufacturing site in the Philippines to create a global logistics system that will provide diversified production services. OSE’s other business, the Semiconductor Group, does IC packaging and testing. Earlier, OSE announced its plans for Sparqtron (May, p. 10-11)….IndustryWeek magazine has chosen Flextronics International as one of the world’s 100 best managed companies. Winners came from the IndustryWeek 1000, a list of the world’s largest publicly held manufacturing companies. Evaluation was based on financial performance, review of a questionnaire, research into practices such as philanthropy and safety, and voting by a panel….The Siemens Electronics Manufacturing Center will hold DFS ’99, the Design for Success Seminar, at the center’s Johnson City, TN, location on Oct. 12-13. Organized for OEMs, this free seminar will explore the interdependency of design and manufacturing. Call (423) 461-2983….Sanmina has set up an R&D lab to focus on high-density PCBs and multichip modules requiring gold wirebonding or flip chip attachment.

EMS industry suppliers in the news… SCI Systems (Huntsville, AL) will use software from Tecnomatix Technologies (Herzliya, Israel) and Japan’s Fuji Machine Manufacturing Co. in 26 SCI facilities. Tecno-matix’s Unicam software allows assembly planning, monitoring, documentation and interfacing with respect to non-Fuji PCB assembly equipment, and jointly developed FujiCam software lets engineers program, optimize and monitor Fuji assembly machines. SCI has placed a combined order of $3.8 million with the two suppliers. Also, SCI has installed multiple VT-8000 automated optical inspection systems from Orbotech (Yavne, Israel) at SCI’s Singapore facility….Microboard Processing, a $30-million CM, has implemented Baan ERP on the Microsoft NT platform. A Baan channel partner, SE Technologies, participated. The CM reported that it initially implemented all the core modules of the ERP software in four and a half months.

Industry news…CEERIS International (Old Lyme, CT) has completed a study of PCA cost of conversion, which is the difference between the selling price of a PCA (printed circuit assembly) and the cost of the material. The report, entitled “Cost of Conversion Benchmarks for Printed Circuit Assemblies,” is based on data from 17 CMs and OEMs, who each selected at least four representative PCAs for the study. For mixed-technology boards, conversion cost averaged $0.074 per component for high-volume assemblies, $0.188 per component for medium volumes, and $0.305 for low volume. The study examined conversion cost by type of board technology, assembly volume and lot size, business sector and geographic region. To contact CEERIS, email CEERIS@aol.com….The Service Excellence Awards, sponsored by Circuits Assembly magazine and Technology Forecasters, have moved to Nepcon West 2000 from Feb. 28 to March 3, 2000, in Anaheim, CA….IPC, the trade association, has launched a web site with information on lead-free alternatives. The site’s address is www.leadfree.org.

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People on the move… Solectron has named two additional corporate officers: G. Fred Forsyth, corporate VP and president of Solectron Americas, and Daniel Perez, corporate VP and chief administrative officer. As part of a new organizational plan reported here last month (p. 6-7), these appointments increase the number of corporate officers to eight. Solectron has also appointed Bernard Mathaisel as corporate VP and chief information officer. Prior to Solectron, Mathaisel was CIO of Ford Motor Co. He will report to Dr. Ko Nishimura, chairman, president and CEO. Ken Ouchi, Solectron’s former CIO, will move to a new job as corporate VP of strategic transformation and will report to Walter Wilson, senior VP of business integration and IT….At SCI Systems, Michael Coleman has rejoined the company at VP and plant manager of Plant 9 in San Jose, CA. John Dullea, a former manufacturing executive with Motorola, has joined SCI as VP and plant manager of Plant 2 in Huntsville, AL….David Fradin, president and COO of IEC Electronics (Newark, NY), has been named president and CEO effective Oct. 1. He succeeds Russell Stingel, who is retiring at the end IEC’s fiscal year. Fradin will join the board of directors, and Stingel will continue to serve as chairman….Margit Elo has joined Manufacturers’ Services Ltd. as VP and GM of its Arden Hills, MN, center for high-mix, low-to-medium volume, high-complexity PCB and systems assembly. Before MSL, Elo spent more than 13 years at Lucent Technologies in a range of manufacturing management and engineering positions. Her first initiative will be to implement a demand-pull system….Plexus (Neenah, WI) has hired Mark Plummer, formerly with EFTC, as director of corporate development to head Plexus’ mergers and acquisitions efforts. The company says its growth plans for the future have an increasing focus on strategic acquisitions.

More people on the move…Lynn Brock has taken over as CEO and president of Qtron (San Diego, CA). He joined the EMS company as COO about a year ago, and his prior experience includes contract manufacturing at K*TEC Electronics. Qtron’s new COO is Karen Daniels, who most recently served as VP and GM of Genetronics in San Diego. Brock reports that Qtron’s sales in fiscal 1999 grew more than 50% over the prior year, and that the company is profitable….Senior Systems Technology (Chatsworth, CA) has named high-tech veteran Harvey Magidow as director of national sales….Roger Luther, formerly with EJE Research, has joined Harvard Custom Manufacturing (Salisbury, MD) as director of operations at HCM’s Owego, NY, facility….Laughlin-Wilt Group (Beaverton, OR) has added Don Smith as director of manufacturing for LWG’s facility in Orange County, CA. He had been VP of operations for Torrent Networking, a telecom start-up….Dauphin Technology (Palatine, IL), has appointed Kostas Arhos as president of its contract manufacturing subsidiary, R.M. Schultz & Associates. Dauphin has developed a handheld computer, which is one of the products assembled at RMS….LeeMAH Electronics (San Francisco, CA) has hired Joe Avery as VP of marketing programs. Most recently, he was director of Silicon Graphics’ domestic supplier diversity programs. Also joining LeeMAH are Roger Brandt as senior technical director and Jim Legge as business development manager. Brandt spent 30 years with what is today Lucent Technologies….Garry Bowhall has assumed the role of COO at Phoenix International (Fargo, ND), while Mark Wolfe, formerly VP of sales and marketing, has become VP and GM of the Fargo facility. In addition, Phoenix has formed a Strategic Operations Group to oversee long-term growth and global initiatives. Group members are Barry Batcheller, president and CEO; Sally Bosh, VP of worldwide accounting and finance; Roger Levos, VP of worldwide manufacturing; Paul Nystuen, VP of worldwide engineering; as well as Bowhall and Wolfe….EPE Corp. (Manchester, NH), promoted John Moran to VP of business development and James Bell Jr. to VP of operations….LaBarge (St. Louis, MO) has appointed Randy Buschling as senior VP and Rick Parmley as VP of sales and marketing in the Manufacturing Services Group, one of three operating units in LaBarge’s new organizational structure. Both men had held other positions within the company….UMM Electronics (Indianapolis, IN), a medical CM, has promoted Russ Gray to VP of new product development and operations and Ty Whitacre to director of sales and marketing….EFTC (Denver, CO) has hired James Kenyon as VP and GM of its Southwest Mil-Spec Operations in Tucson, AZ. Prior to EFTC, he was director of quality and materials at Honeywell’s Phoenix-based Air Transport Systems.

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Copyright JBT Communications

MMI July 1999

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