MMI December 2001
Vol. 11, No. 12: December 2001
Table of Contents
Tech Trends: IT
Cisco Takes Optical Outsourcing to System Level
Celestica to acquire optical manufacturing and NPI operations
Cisco Systems is outsourcing the system side of its optical business along with some associated PCBA to Celestica (Toronto, Canada). Despite a soft optical market, this event marks an important milestone in the migration of EMS providers into the optical space. Heretofore, optical start-ups in some cases would be willing to outsource through full system build, but not the major OEMs in optical networking.
Under this deal, Cisco will transfer operations and a total of 160 people in two locations to Celestica. In Salem, NH, Celestica will take over 120 employees from Cisco’s optical business and lease a portion of Cisco’s New England Manufacturing Center. In a related action, Celestica will consolidate operations from its Lowell, MA and Portsmouth, NH plants into the new Salem space. Some employees from the two plants being closed – Dow Jones is reporting about 350 – will be sent to Salem.
Also as part of this program, Cisco will move the NPI activity performed by its optical unit in Monza, Italy, to a Celestica operation in a suburb of Milan. Along with this work, Celestica will obtain 40 Cisco engineers in the photonics area. While this NPI work will stay in Italy, production will go to Celestica’s new facility in Salem.
In conjunction with the transfer of operations, Celestica will be acquiring certain inventory and operating assets in Cisco’s Salem and Monza operations.
“It’s a very good opportunity. It allows us to obviously deepen a relationship with a very important customer as well as to get skills and solidify our leadership position in the optical arena,” says Tom Tropea, vice-chairman of Celestica.
According to Tropea, Celestica will be providing Cisco with an end-to-end solution through order fulfillment. This program includes some of the PCBA and all of the system integration and test for Cisco’s metro and core optical business.
What is the outlook for the optical market? “I think the metro market will grow next year,” says Tropea. “I think the long-haul market will be down again next year, probably with a rebound some time in 2003.” He believes “that’s pretty much the consensus view in the market right now.”
New optical technologies mean new programs
But the optical slowdown has not squelched new technologies, which if successful, lead to new optical products and potential outsourcing. PhotonEx Corp. (Maynard, MA) is using two EMS providers to deliver what is billed as the first 40 Gbps core optical system. The company has engaged with both Celestica and Teradyne Connection Systems, (Nashua, NH), a division of Teradyne. Expected to be generally available by year’s end, PhotonEx’s first product is an end-to-end DWDM optical transport system that starts at 40 Gbps (OC-768).
The optical OEM has adopted a hybrid manufacturing model consisting of external and internal manufacturing capabilities. PhotonEx has selected Celestica for its supply chain management, test development, prototype manufacturing, PCB assembly and test, and optical manufacturing services. In an earlier interview, Celestica told MMI that it is producing boards and optical modules for PhotonEx. The two companies started their relationship well over a year ago,
In addition, PhotonEx is using the Teradyne division’s systems assembly and test operation as well as its technology for high-speed differential connectors and multilayer PCB fabrication.
What’s more, SpectraSwitch (Santa Rosa, CA), which makes optical switching and signal conditioning components, has entered into a technology licensing and manufacturing agreement with Flextronics Photonics, a business unit of Flextronics (Singapore). SpectraSwitch will license certain technology to Flextronics, which will provide contract manufacturing for SpectraSwitch’s WaveWalker line of optical components. This product family is based on liquid crystal technology and provides intelligent optical engines.
“SpectraSwitch has embraced the benefits of outsourcing design and manufacturing services for optical components. The process technologies licensed under this agreement will further enhance Flextronics Photonics’ portfolio of advanced photonic manufacturing process technologies,” states Ron Keith, VP and GM of Flextronics Photonics. The Flextronics unit is billed as the world’s largest noncaptive photonic component manufacturer.
Then there’s Cirrex (Alpharetta, GA). This developer of optoelectronic hybrid subsystems will partner with PEMSTAR (Rochester, MN) to manufacture Cirrex’s Optical Communication Hybrid Integration Platform (OCHIP). OCHIP products combine active and passive optics and electronics into a single compact package using miniaturized planar lightguide circuitry to eliminate free space between components. Cirrex’s approach also eliminates the need for lensing in optics assembly.
Cirrex and PEMSTAR will jointly develop the various manufacturing processes, including optical coupling and attachment, laser attachment, hybrid board assembly, hermetic sealing and testing. PEMSTAR is installing a 10,000-ft2 clean room facility with precision automated alignment equipment developed by PEMSTAR and dedicated to OCHIP manufacturing. The provider expects to begin manufacturing the first production units in the first half of 2002.
One would be inclined to think that technology-laden optical programs will be confined to tier-one and -two providers. But the following two examples poke holes in that assumption.
CASE Starts Down Optical Path
CASE Assembly Solutions, an EMS provider with 25 employees in Easton, MA, has also been busy on the optical front. Having put its optical strategy into practice over the last four months, CASE has landed a production contract with its first main optical customer and is in the engineering phase with three other optical customers.
“We are working with a lot of optical customers literally from scratch,” says Gregory Cronin, president and cofounder of CASE. “A lot of processes they need aren’t even developed.”
“We’re looking at developing in-house custom automation and software solutions for optical assembly,” he adds.
CASE’s new optical business, operating under the name CASE Optical, will take a portion of the 12,000-ft2 production space being added to the provider’s Easton facility.
Cronin says “pretty much all” of CASE’s optical customers already have electronic assemblies processed by the company.
Nextek Aims To Stay Ahead in Optical
Larger EMS providers can still invest in optical capabilities despite a downturn in the communications market (Aug., p. 3-5). For a larger provider, that investment is not likely to break the bank. The stakes are much higher for a smaller company. Yet the case of Nextek (Madison, AL) shows that a smaller provider can not only play in the optical arena, but also lead the way with advanced capabilities.
Nextek did flip chip on glass over two years ago for a telecom development project in optoelectronics. The company has been involved with various types of MEMS (micro-electromechanical systems) devices intended for optical assemblies. In another case, Nextek assembled a large focal plane array with die 0.8 inch on a side for an imaging application. Such devices require highly precise placement in all three axes.
What’s more, Nextek can handle complex optical products that incorporate a number of advanced assembly processes. For a military application, Nextek has built a parallel optical communications device that included precision optical alignment as well as flip chip on glass and wire bonding, where the substrate was a flex circuit with a heat spreader. “That one had about all the processes under the sun,” remarks Phil Yates, Nextek chief technology officer.
How does Nextek pull this off? From day one in 1995, the company’s basic mission has been to stay one step ahead of the technology curve. Nextek started out “with the vision of being in precision assembly and being in places where some of the other big guys weren’t,” explains Jim Trummer, Nextek cofounder, president and CEO.
Given that mission, Nextek went into production for its first optical customer over three and a half years ago and now has worked with some seven to ten customers on the optical side. The company is unable to release the names of those customers. But it will say it got started in the parallel optical link segment, usually characterized by transmitters, receivers or transceivers for very short reach (VSR). Nextek continues to expand in the VSR market, while pursuing other product areas including the long-haul market. The provider is focusing its efforts on microelectronic modules and subsystems for optical products.
Still, Nextek is picking its spots carefully. “There are some segments of the opto market that are really hurting right now. But there are other segments that are still healthy,” says Trummer.
The company’s optical business is gaining additional capabilities from a major investment in infrastructure. This investment, which is nearly equal to what it took to start the company, covers a technology spectrum from SMT through advanced bare die processes and optoelectronics. As part of that investment, Nextek is in the process of installing optoelectronic process capability for precision alignment and bonding, specialized dispensing and curing as well as testing.
The new alignment capability will achieve submicron accuracy, which has become a requirement for aligning optical elements on the component level. And there are other requirements for precision in the optical arena. “This is not only just alignment of optical elements, but it’s precision fabrication of all the rest of the device, particularly where some folks have come up with different solutions that require different types of assembly technology. It’s still very, very high precision,” reports Trummer.
“You can easily find things like chip and wire, flip chip, conventional SMT, all of that bound up in a single product as well as the need for precision optical alignment and testing,” he notes.
Nextek prides itself on its ability to handle products loaded with different assembly technologies. “That’s where a company like Nextek that has deployed a whole spectrum of these technologies really adds some value because we’re not single-technology bound,” says Trummer.
Capabilities across the assembly technology spectrum allow Nextek to act as an NPI center for larger EMS players who may not be as versatile. “Nextek has successfully provided front-end technology in the optical arena for some of the larger EMS providers,” points out Jim Harris, Nextek cofounder and VP of marketing, sales and customer service.
Privately held Nextek reports that it has doubled in size every year for the last three years. Company executives recently appeared on a Fox Cable News segment called “Champions of Industry.”
Tech Trends: IT
New Tool for Managing Customer Profitability
New software from Storm Technology (Galway, Ireland) gives EMS providers the ability to efficiently quote new business and then monitor that customer based on profitability, return on investment, and allocated resources. This ability, dubbed Customer Profitability Management, is at the heart of Storm’s new tool, SiMPRO.
“Our view of the world is pricing and customer profitability are inextricably linked,” says James Lyons, Storm’s VP of Business Solutions and SiMPRO’s architect. “You can’t have pricing in one world and then people managing customer profitability in a different world. So our business model allows you to connect both of those [worlds].”
A sales person can log onto SiMPRO, see how well a customer account is actually performing and use that information to price new business. The tool will also tell the person if existing business should be repriced based on increased volumes from the new business.
Using this tool, providers can increase customer profitability by at least 10%, says Storm. Other benefits listed by Storm include a 50% reduction in management time used in the quote process, a 10% reduction in quote cycle time, and a 20% reduction in quote processing costs.
With SiMPRO’s drill-down capabilities, a provider can start with site profitability, then view profitability by customer, product and process. That way, the provider can distinguish weak accounts from strong ones. For example, if a customer has a nasty habit of generating lots of engineering change orders – beyond what is allowed for in the business model set up for that customer in SiMPRO – the tool shows that new pricing is in order. So SiMPRO closes the loop between pricing and the management of customer profitability.
SiMPRO consists of four modules. The Maintenance module is used for setting up users and roles, security and the provider’s cost model and for entering business parameters. In the RFQ module, the provider sets up the RFQ, imports engineering and materials data, tracks the RFQ and performs win/loss analysis.
The RFQ Financials module allows the user to model the business being quoted and analyze what-if scenarios. For example, the user can see the effect of different volumes on pricing. SiMPRO will recommend a price based on cost and the provider’s financial goals and business parameters. But the provider can adjust the price as necessary. After obtaining approvals electronically, the system will prepare both an internal and external quote.
The fourth module, Customer Management, provides the ability to manage account profitability and ROIC on an ongoing basis. For example, this module allows the provider to implement a structured cost-reduction process.
A typical site implementation of SiMPRO at a tier-one provider would have a list price of $250,000, depending on the number of users. Storm is also selling the tool on a subscription basis. According to Storm, it can have a site up and running in four to six weeks, depending on configuration and business complexity.
At present, Storm has two beta customers among the top-10 providers. The company has engaged a deployment partner in the US. For more, go to www.storm-solutions.com.
MCMS Assets Now Going To Plexus
Plexus gains Asian presence
Plexus (Neenah, WI) has won out as the successful bidder for assets of MCMS through a Bankruptcy Court-approved auction. When MCMS originally filed for protection under Chapter 11 of the US Bankruptcy Code, the company entered into an agreement to sell assets to Manufacturers’ Services Ltd. (Concord, MA). (See Sept., p. 3). But in this Chapter 11 process, MCMS had to consider other offers during a waiting period.
Plexus will pay $45 million, subject to adjustment, for a majority of MCMS’s assets. These include certain manufacturing operations in Penang, Malaysia; Xiamen, China; Nampa, ID; San Jose, CA; and Raleigh, NC. MCMS’s Monterrey, Mexico operation will not be a part of the deal because Plexus already has a facility in Juarez, Mexico, with sufficient capacity. By comparison, MSL offered $43.5 million for operations in all six locations. Also excluded is an MCMS operation in Colfontaine, Belgium; that operation intends to go it alone.
Annual revenue from this acquisition is expected to be between $125 million and $150 million. On that basis, the acquisition is projected at breakeven to slightly accretive to Plexus’ fiscal 2002 cash earnings, before any one-time transaction and related charges. Because Plexus is acquiring assets through a Chapter 11 process, it will not assume any of MCMS’s interest-bearing debt.
This deal will extend Plexus’ footprint to Asia and specifically to low-cost sites in Malaysia and China. “The acquisition of MCMS meets several of our long-range strategic objectives, principally in immediately gaining a strong presence in Asia, including high-technology manufacturing and procurement,” states John Nussbaum, Plexus’ president and CEO. “The addition of several new tier-one customers in the optical networking, data communications and computer-related industries will add revenue in 2002 and increase capacity utilization at current Plexus sites. Also, MCMS adds technology depth in the area of optics, RF/wireless and microelectronics.”
Plexus will evaluate where the work from MCMS will be done based on customer needs, technology and capacity utilization.
The Bankruptcy Court for the District of Delaware has approved the sale, and it is expected to close in early January 2002.
Following the Chapter 11 filing, MCMS gained approval of a $49-million debtor-in-possession facility to fund ongoing operations.
SMTEK Grabs Century Assets
SMTEK International (Thousand Oaks, CA) has purchased assets in four locations from Century Electronics Manufacturing, another CM that had filed for bankruptcy protection under Chapter 11.
SMTEK paid about $3.1 million in cash for certain assets in Marlborough, MA; Santa Clara, CA; and Boca Raton, FL; as well as substantially all of the common stock of Century’s subsidiary in Thailand. Century had been headquartered in Marlborough. The purchase included about $2.4 million for certain equipment, machinery and inventory, some of which will be used at other SMTEK locations. The remaining $700,000 went for the common stock of the Thailand subsidiary.
This deal puts SMTEK into New England and Silicon Valley and enables the provider to offer a low-cost Asian site in Thailand. SMTEK also gains an Asian purchasing center. The Marlborough, Santa Clara and Thailand facilities add up to about 120,000 ft2. With these new sites, SMTEK is up to seven locations covering Asia, Europe and the US.
While SMTEK is operating Century’s Florida facility of about 120,000 ft2, SMTEK has not yet decided whether to keep it open or close it. The company has a pre-existing operation in South Florida.
Unlike MCMS, Century had filed for Chapter 11 in January of this year, before the downturn had fully emerged. Century had attempted a reorganization plan.
New Company Buys ASD Assets
Technology Outsource Solutions LLC (TOS), a new privately owned company, has purchased the operating assets of ASD Group, also in Chapter 11 (July, p. 8), and its contract manufacturing subsidiary. TOS has taken over ASD’s 77,000-ft2 facility in Poughkeepsie, NY, with a current work force of 70 people.
TOS paid $1.35 million for the assets, which did not include real estate owned by ASD. The new company was formed by two investors, one of which was a major stockholder in ASD.
The new provider is making a break with ASD’s past, where emphasis was placed on turnkey engineering projects. “Engineering cost us too much money,” says Bill Courchaine, COO of TOS. ASD could not recoup its engineering costs from single-product builds, he explains. So TOS has refocused its business more on manufacturing and less on engineering. Still, “we will do selective engineering design on multiple-product production,” says Courchaine.
TOS is also pursuing new markets including security devices, given the need for greater airline security in the US, and military programs. The former ASD did not do military projects. That’s “a big swing in the company’s philosophy of the past,” remarks Courchaine.
For example, TOS did the metal fabrication and mechanical assembly work for prototypes of a military robot. Designed to clear minefields, the unit was one of the robots used to search for bodies at the World Trade Center. TOS is now bidding on the full robot package including the electronics as it enters volume production.
Another new market for TOS is telecom, as shown by one of its customers, L3 Communications. Other customers include IBM, Motorola and Suss Microtek.
“We’re a healthy company, but with poor timing,” says Courchaine. “Sales are so low because the economy is so terrible. We’re building the company from the ground up again. We’re basically starting all over.”
He points out that TOS has a skilled work force and plenty of available capacity. Besides offering PCBA, subassembly and equipment build, TOS has vertically integrated capabilities in sheet metal fabrication, machining, welding and painting.
Solectron Buys Repair and Logistics Unit
Solectron (Milpitas, CA) has purchased Artesyn Technologies’ repair and logistics business unit for $33.5 million. The acquired unit, Artesyn Solutions, is based in Lincoln, CA, and operates other sites in Nashville, TN, and Louisville, KY. Its annual sales are estimated at about $49 million.
According to Solectron, the purchase will further strengthen Solectron’s postmanufacturing services with the addition of Artesyn Solutions’ material returns processing capabilities. Artesyn Solutions also provides repair, refurbishment, logistics and supply-chain management and end-of-life planning services for customers in the PC, printer, storage, server, wireless and consumer electronics sectors. Solectron will integrate the unit into its worldwide Solectron Global Services operations.
Artesyn Technologies, which acquired the repair business in 1997, is focusing on its power and communications products business.
Earlier in October, Solectron concluded its acquisition of Stream International, a CRM provider that was also added to Solectron Global Services (Oct., p. 4-5).
Global Services’ goal is to become 10% or more of Solectron’s revenue within a relatively short period, which might be a year or two (Oct., p. 5). The company has told MMI that achieving this target will require dramatic growth rates. Global Services has been looking for acquisitions that will increase the rate of growth.
More deals done…Solectron has also completed its acquisition of C-MAC Industries (Montreal, Canada). Based on Solectron’s closing price on Nov. 30, the transaction was worth about $2.3 billion, including debt. The deal was valued at about $2.7 billion when the deal was announced (Aug., p. 1-2). For the quarter ended Sept. 30, C-MAC reported revenue of C$419.0 million, down 40% from the year-earlier period….The newly merged combination of Sanmina (San Jose, CA) and SCI Systems (Huntsville, CA) will be known as Sanmina-SCI Corp. (July, p. 1-2). During a recent conference call, executives of the new company estimated that it would exit its fiscal 2002, ending in September, with total sales of about $11.5 to $12 billion. That does not include any incremental revenue from future outsourcing opportunities. Cash EPS for fiscal 2002 is projected at about 59 to 65 cents. Jure Sola, chairman and CEO of Sanmina-SCI, said the company is working on five to seven opportunities that “are our deals to lose.” Not in the guidance, these deals amount to an annual run rate of between $3 and $5 billion, according to Sola. The new company increased its projections of annualized synergies to $300 million, to be achieved starting in Q4 fiscal 2002. Synergies for fiscal 2002 are estimated at about $200 million. The company expects a combined proforma charge of about $253 million in the current quarter and a charge of about $165 million in subsequent quarters for consolidation and restructuring.
Raven Adds EMS Co.
Publicly held Raven Industries (Sioux Falls, SD), which offers EMS through its Electronic Systems Division (ESD), has purchased System Integrators, a privately owned EMS provider in St. Louis, MO. The price was about $1.4 million in cash and the assumption of about $600,000 in debt.
Revenues from this deal are expected to be in the $5-million range annually and to be accretive to earnings.
Operations of System Integrators will be consolidated into those of ESD. “Personnel and equipment are being transferred to our plant in Earth City, MO. The acquisition greatly enhances our design engineering services capability and helps to better utilize existing manufacturing capacity. We are looking forward to serving System Integrators’ customers,” states David Bair, VP and GM of EDS.
Design capabilities acquired include hardware design, embedded software development, board design and custom test fixture development.
For the quarter ended Oct. 31, ESD contributed sales of $6.7 million, down 12% from the year-earlier quarter. The division generated operating income of $508,000, compared with a loss of $163,000 in the same period a year earlier. ESD’s sales for the first nine months of fiscal 2002 were nearly flat at $23.0 million, while operating income amounted to $1.4 million. ESD serves customers in industrial controls and instrumentation, aerospace/aviation and communications.
Besides ESD, Raven operates two other core divisions in reinforced plastic sheeting and flow control devices.
Merger Is Off
The merger of Canada’s AimGlobal Technologies, which engages in EMS through its operating subsidiary Aimtronics (Delta, BC, Canada), and Creation Technologies (Burnaby, BC), another Canadian EMS company, has fallen through. Publicly traded AimGlobal and privately held Creation had announced earlier their intention to join forces (Sept., p. 4-5).
“AimGlobal terminated discussions regarding the merger for the simple reason that the merger was seen as not in the best interests of AimGlobal or its shareholders,” says Steve deJaray, AimGlobal’s chairman and CEO.
According to Creation, its desire to make the deal ended when two of AimGlobal’s three directors resigned. “Key people we made the agreement with were no longer involved,” explains David Pettigrew, Creation’s VP of sales.
Nevertheless, Creation did end up with one of AimGlobal’s facilities. During the due-diligence period for the merger, Creation bought the assets of AimGlobal’s plant in Mississauga, Ontario, hired the employees there, and took over the plant and its business. This plant was combined with Creation’s existing Mississauga facility into a single business unit. Proceeds from the sale are expected to be C$4.5 million, with payments subject to final asset values. AimGlobal had earmarked that facility for closing.
Creation ended its fiscal year in March 2001 with sales of C$112 million and is estimating sales of around C$100 million for fiscal 2002. The company reports that it continues to be profitable. Its three largest sectors are medical instrumentation, commercial applications in wireless, and industrial controls. Creation describes itself as the largest private contract manufacturer in Canada. The CM focuses on medium-volume, high-complexity work for the North American market.
About 40% of Creation’s customer base comes from the US, and the provider is planning a more serious entry into the US market. Creation is investigating options that include a US manufacturing presence, which the company currently lacks.
Meanwhile, AimGlobal reported sales of C$27.8 million for its fiscal Q2 ended Sept. 30, down from C$42.8 million a year earlier. Besides the downturn, other contributors to this decline were the sale of the Mississauga operation and the cancellation of a program from Cell-Loc. AimGlobal is seeking recovery from Cell-Loc through legal means (Sept., p. 5). For the quarter, AimGlobal posted a net loss of C$2.7 million. Six-month sales totaled C$60.3 million versus C$79.4 million in the prior fiscal year. For the first half, net loss amounted to C$9.6 million, including a restructuring charge of $C2.6 million.
AimGlobal recently announced C$9.3 million in business from two customers. An existing customer producing industrial wire-line analysis equipment increased its demand by C$4.2 million within the current quarter, and a new customer in industrial networking awarded a C$5.1-million contract. As of Sept. 30, AimGlobal’s backlog was about C$101 million. Continuing to rationalize its operations and cost structure, the provider has reported positive EBITDA for September, October and November.
Still, AimGlobal’s credit line is fully drawn. “Our company is out of the financial woods if we stay the status quo,” deJaray points out. The issue for Aim is how to finance its growth opportunities. “To capture those opportunities, we will be exploring primarily debt,” he says
AimGlobal founder deJaray has returned as company chairman and CEO after stepping down from that role some months earlier (Sept., p. 4). He says, “I never wanted the merger. Actually, I had attempted to buy Creation in May 2000 and walked away.”
In August, AimGlobal announced a strategic alliance for offshore production in both China and Brazil.
Design alliances…Solectron and Infineon Technologies (Munich, Germany), a semiconductor supplier, have entered into an alliance to offer originally designed GSM- and GPRS-based personal communication devices. These devices include cell phones, pagers and wireless-equipped personal digital assistants. Designed in partnership with Infineon, the devices will be based on chipsets and GSM/GPRS software from Infineon and two subsidiaries. Solectron will provide a full supply-chain solution, including design, manufacture, after-sales service and logistics support….IEC Electronics (Newark, NY) and AMIRIX Systems (Halifax, Nova Scotia, Canada), an embedded systems design house, have forged a strategic alliance for an end-to-end solution from conceptual design. AMIRIX’s 55 engineers will provide hardware platform design, embedded software design, systems integration, accelerated design processes and methodologies, and technical support. IEC will take it from there, providing DFM and DFT through volume manufacturing and distribution. IEC says this alliance allows it to offer complete design services without a large capital investment.
Electromechanical alliances…Two enclosure and integration companies – APW (Waukesha, WI) and Neilsen Manufacturing (Salem, OR) – have formed an alliance to design and manufacture products for shared customers in multiple locations using facilities from both companies…Trend Technologies (San Jose, CA) and Salmon Falls Precision Fabricators (SFPF of Rochester, NH) have entered into a similar alliance, but for the Northeastern US. In this Northeast Alliance, customers from the region can utilize SFPF’s local expertise in sheet metal fabrication and electromechanical assembly along with Trend’s global capabilities such as metal stamping, plastic injection molding, die and mold fabrication, and electromechanical integration.
Able Still Expecting High Growth
Although the downturn has crushed many a growth plan, one company – Able Electronics (Hayward, CA) – expects to approach its original projection for its fiscal year ending March 2002. And that projection called for growth of 50%+.
“I’m still holding firm that we will be close to the 50% revenue growth on our year-to-year performance,” declares Peter Dennis, Able’s president and COO. “And we see sequential quarter-to-quarter growth.”
But Dennis points out that Able has been affected by the downturn. Not that the company has lost any customers, but there have been slowdowns. On the plus side, though, Able has succeeded in adding some four new customers over the last four or five months. Counting new business that Able expects to land will “pretty much put us where we need to be,” says Dennis.
In addition, Able recently announced two program wins from existing customers. The company has been selected by TrueTime (Santa Rosa, CA) to manufacture timing and frequency products used in mission critical applications such as network synchronization. In the second case, Able was chosen to manufacture boards for a protein sequencer and a genetic analyzer from Applied Biosystems (Foster City, CA), a division of Applera Corp.
Dennis reports Able has been winning new customers at a rate of over 80%. The company attributes this success in large part to its model. That model involves offering an end-to-end solution through cable assembly, sheet-metal attachment, final assembly, functional testing, packout and order fulfillment. The idea is to provide front- to back-end services for smaller OEMs.
What’s more, Able has increased the level of vertical integration that it can provide. Not only does the provider handle cable assembly in house, it recently started up a sheet metal cell with Amada equipment for low- to medium-volume work.
Able distinguishes itself from a tier-four or -five contractor that is merely interested in bidding on board assembly jobs. For Able, the goal is to add value for the customer base. “It’s not about getting an order. It’s about becoming a partner,” says Dennis.
Another factor in Able’s win rate is its proprietary, realtime customer tracking and reporting system called AbleTrax. This system allows customers to instantly check manufacturing status and delivery schedules 24/7. They can also access other data such as shipments, orders, liability, yields, backlogs and POs.
Founded in 1988, Able was acquired by GET Manufacturing in 1997 and relaunched in 1999 after GET was acquired by Jabil Circuit (Dec. ’99, p. 5-6). Then in early 2000, Able started a greenfield operation in Tijuana, Mexico, followed by a move to a new 135,000-ft2 facility in Hayward, CA, in the fall of last year. The company also has an alliance for manufacturing in China.
Privately held Able is nearing the $50-million level in annual sales. It serves OEMs in telecom, test and measurement, medical instruments, computer peripherals, industrial controls, and genetic research.
Nokia’s Handsets Less Than 20% Outsourced
Earlier press reports had Nokia planning to increase its handset outsourcing to 20% this year, doubling the amount contracted out (May, p. 7; Feb., p. 9). The EMS industry will be disappointed to learn that Nokia has not taken its mobile-phone outsourcing to this level.
According to Megan Matthews, a US spokesperson for Nokia, its handset outsourcing is still closer to 10% than 20%, and, she says, no outsourcing has occurred lately. Matthews points out that Nokia had said it would possibly outsource between 10% and 20% of production by the end of the year.
She says Nokia outsources for flexibility and not for cost, which is the reason that many manufacturers do it. “There’s no one out there that can make phones cheaper than we can,” she declares.
The Nokia spokesperson did not comment on a report from Asia that Nokia is outsourcing some amount of handset production to Taiwan’s Hon Hai Precision Industry Co., better known by its Foxconn brand name.
New programs… Photon Dynamics (San Jose, CA) will begin outsourcing its flat panel display (FPD) manufacturing to Sanmina-SCI, which will sublease a portion of Photon Dynamics’ FPD facility in San Jose and acquire certain assets. Photon Dynamics is a supplier of yield management solutions for the display, electronics and glass markets….Samsung Electronics Iberia Co., a Spanish subsidiary of Samsung Electronics, has selected Manufacturers’ Services Ltd. (Concord, MA) to manufacture the main circuit board for an unidentified product. MSL will perform this PCBA in its Valencia, Spain facility….PEMSTAR (Rochester, MN) will provide a full range of manufacturing and fulfillment services to LightStream Technologies (Reston, VA), a provider of water disinfection technologies. The two companies will work together to implement an online build-to-order distribution system. Also, PEMSTAR Pacific Consultants, a PEMSTAR subsidiary, has been awarded a US Army contract to develop a prototype Mounted Warrior System for crew communication in various armored vehicles. This project will leverage existing subsystems from the Land Warrior project, whose development is headed by PEMSTAR Pacific Consultants (Sept., p. 3-4)….Test Technology, Inc. (TTI of Marlton, NJ), which operates both EMS and repair businesses, has landed an agreement to provide telecom product repair services for Datacom Warranty Corp. “I believe extended warranties, which Datacom sells, are a major opportunity for CMs as they move to expand their services,” says Stephen Howell, VP of marketing at TTI.
Philips Is Back in EMS Game
But is still outsourcing
Philips has been quite public about entering the EMS business through its newly named Philips Contract Manufacturing Services group. But many in the EMS community may not realize that this is the second time around for Philips.
Philips’ original contract manufacturing group was called Philips Circuit Assemblies, and the group’s facilities in Florida, Scotland and Singapore were sold off in 1993. For example, Solectron bought the plant in Dunfermline, Scotland, as the company’s second site Europe. Philips completely withdrew from contract manufacturing in 1994 when it sold its EMS facility in Mexico City, Mexico.
The new EMS group was formed from Philips’ PCB assembly unit, with some Euro 1.7 billion in revenue, around 7000 employees and 13 global facilities.
But large OEMs do not always follow a universal strategy when it comes to outsourcing. While Philips’ contract manufacturing unit is seeking outsourced work, its Consumer Electronics business has outsourced VCR production for the European market to Japan’s Funai Electric Co.