MMI January 2001

Vol. 11, No. 1: January 2001


Table of Contents

Cover story

Will History Repeat Itself in 2001?

Tools

How To Increase Output Without Adding Equipment

News

Jabil Wins Marconi Bid

SCI To Buy Nortel Lab

C-MAC Obtains EMS Operations from Honeywell

Deals done

Alliance made

Manufacturing to stop at Motorola facility

New programs


Will History Repeat Itself in 2001?

MMI’s Annual Outlook for the Year Ahead

Some Wall Street economists are already predicting that the US economy will slide into a recession this year. Other forecasts hold on to the notion of a soft landing. Either way, is the EMS industry in any danger? The answer is no if the last recession of 1990-91 is an indication of things to come. For it was during this period that OEMs began to view contract manufacturers as strategic partners for the long term instead of temporary sources of additional capacity. OEMs were looking to cuts costs, and contract manufacturing offered the solution. Indeed, the principal reason that MMI was dedicated to contract manufacturing was its growth during this period when every other electronics sector was down.

Despite moderating demand in some market segments, MMI believes the EMS industry will come through 2001 with flying colors. The reasons are simple. OEMs cut costs when times are tough, and outsourcing still has a long way to go before it reaches full market penetration. There is every reason to believe that during a slowdown OEMs, if anything, will increase outsourcing levels faster than planned. The history lesson of 1990-91 should portend of goods things to come in 2001.

Not only will the industry continue to grow nicely, it will also keep evolving. In this annual outlook for 2001, MMI has identified six trends that will play important roles in shaping the industry during the year ahead.

EMS industry stratification will increase. But rather than being squeezed out of existence, mid-tier CMs will generally grow stronger this year.

Large program wins continue to fuel growth among top-tier CMs. As long as these CMs keep growing faster than the industry overall, as they have been doing since 1998, it will become harder and harder for other companies to catch up. Last year’s growth among the first tier – quite possibly a record – will put them even further ahead..

But some simple math says that the top tier is in no position to service most of the world’s EMS customers. Nobody knows for sure how large the world’s OEM population is, but it’s more than a few thousand. For argument’s sake, say it’s around 10,000. If the top-10 CMs average 200 customers each, which may be high, these CMs account for 20% of the OEM population at most. Who handles the rest? Mid-tier and smaller players.

Prediction: Top-10 providers will take a majority share of the world’s EMS market in 2001. Although a hard-and-fast definition of top tier will remain elusive, the five or six largest CMs will be able to use revenue as a means to distance themselves from the rest of the industry.

The predicted squeeze on the mid-tier won’t happen. OEMs that cannot get the attention of the largest providers will first seek out mid-tier players, particularly those with robust capabilities. Also, look for some new names entering the mid tier.

Japan will be the next wave in outsourcing, and this wave will be measured in years. But the EMS industry will find new competitors – Taiwanese ODMs -vying for Japanese business.

Japan is the last untouched bastion of vertical integration. Outsourcing has not yet taken hold there largely for cultural reasons. Because Japanese companies typically seek consensus for major decisions such as outsourcing, they do not move quickly. Secondly, they come from a paternal culture where lifelong employment had been the norm.

In the 1980s and early 1990s, the Japanese manufacturing model was the envy of the world. That model, however, depended on product life-cycles that allowed the Japanese to refine their processes for mass production. Today’s OEMs don’t have the luxury of multiyear life-cycles. To keep up with competitors that launch products quicker and cheaper through outsourcing, Japanese OEMs have opened their eyes to the strategic use of contract manufacturers.

Until recently, though, a major question remained. Would Japanese companies be willing and able to transfer both their assets and Japanese workers to a foreign-owned CM? A few Japanese-owned plants outside Japan had been sold, but the domestic market in Japan remained an untapped mother lode in outsourcing potential. For example, The Worldwide Electronics Assembly Market, a report published by Electronic Trend Publications (San Jose, CA), estimated that the electronics assembly market in Japan was worth $124.9 billion last year, or 18% of the world market. Other estimates are higher.

Solectron’s recent acquisition of a Sony facility in Japan shows that divestitures there are possible (Oct. ’00, p. 5-6, Dec., p. 7). And that possibility has top-tier providers licking their lips in anticipation.

Compared with the likes of Ericsson and Nortel, Japanese OEMs seem to moving more slowly into outsourcing. Even Sony is a case in point. While the company is selling off two plants, only seven facilities of a total of 62 are candidates for disposal under its current plan.

The Japanese market will behave differently in another way as well. In Japan, they will face competition from ODMs (original design manufacturers) based in Taiwan. ODMs give Japanese OEMs a second option for outsourcing. Through an ODM, a Japanese company can contract out both the design and manufacturing of a new product. The product never sees the inside of a Japanese factory. So the Japanese OEM avoids any need to transfer work or associated jobs later on. Some CMs may lay claim to full product design capability as well, but they will be competing with ODMs with established reputations for product design.

Use of both ODM and CM capabilities can be seen in NEC’s outsourcing strategy for its cell-phone handset business. The company chose Celestica to take over a cell-phone facility as well as two ODMs to supply certain products for the business (Dec. ’00, p. 6).

In addition, CMs should also keep their eyes peeled for any Japanese manufacturing subsidiaries that decide to try their hand at contract manufacturing as US units of Hitachi and Seiko Epson have done.

Prediction: Facing both a faltering domestic economy and a slowing US economy, Japanese OEMs will step up outsourcing efforts both inside and outside Japan. More divestitures are likely in 2001. But this is a process that will probably take years. It is unlikely that Japanese OEMs will outsource large portions of their manufacturing all at once.

Japanese OEMs value preexisting relationships with their partners. So look for more CMs to establish or enlarge activities in Japan.

ODMs will present formidable competion for design-and-build business. But also watch out for companies such as Acer that could pursue manufacturing business on the EMS side.

Among global CMs, geographic expansion will be largely driven by local market conditions.

Now that the large global players are positioned pretty much where they need to be worldwide, further expansion will be dictated more by local market conditions than anything else. Take South America. The upcoming sales of nine PCS licenses in Brazil will help to fuel the wireless market there. Greater demand for wireless equipment means more work for CMs in Brazil (Dec. ’00, p. 1).

Much of action in Asia will take place in China, which has huge potential as a domestic market. In the past, China mainly served as an export market, supplying low-cost electronics to other regions of the world. The ability of foreign companies to manufacture for the Chinese market was strictly regulated. With China’s prospective membership in the World Trade Organization, those restrictions should be eased. If OEMs do gain unfettered access to China’s domestic market, and that economy continues to grow, then CMs will feel still more pressure to expand in China.

Again, local requirements for China will increasingly influence where manufacturing takes place. In some cases, those requirements will lead CMs to serve the Northern and Southern regions separately. For instance, both Flextronics International and Solectron have positioned themselves to manufacture in both regions.

In Europe, where outsourcing still has a long way to go, Central Europe will continue to bring in more and more outsourced work from Western Europe. Further expansion in Central Europe and possibly Eastern Europe will be dictated primarily by the availability of labor. Central European sites are typically located in towns with limited labor pools.

Prediction: For manufacturing, the large global CMs will largely stay put, adding facility space in regions where they are already have a presence. Possible exceptions include Japan (see preceding trend) and China. As China develops into a domestic market, serving that market will likely require sites in both southern and northern regions. China may well be the hottest EMS market this year as long as WTO membership goes through.

Global expansion among the mid-tier, however, will continue. Increasingly, mid-tier CMs seek to offer a global solution for smaller companies that cannot do business with the top tier (see first trend).

More and more, CMs will be distinguished by their positions on horizontal and vertical integration.

Granted, these are confusing terms. Horizontal integration generally refers to providing the full spectrum of services that an OEM’s product would require during its lifetime. Vertical integration usually means producing bill-of-material items in-house as opposed to procuring them on the outside. Note that these concepts are not mutually exclusive. Nor do they apply in a binary, yes-or-no fashion. Instead, in the EMS industry there are degrees of both horizontal and vertical integration. The degree to which an EMS provider embraces these concepts will play a greater role in defining that provider’s position within the industry.

In the simplest terms, horizontal integration gives a CM the ability to provide design, manufacturing and postmanufacturing services. Horizontal integration arises because OEMs are willing to outsource larger and larger portions of their product cycles. Although the general outline of this strategy is a no-brainer for most contract manufacturers, the devil is in the details, specifically on both ends of the product cycle as 2001 unfolds.

The scope of back-end services continues to expand. Top-tier players such as Celestica, Jabil Circuit and Solectron have set up separate businesses for repair and refurbishment. These businesses add revenue and clients, while giving CMs the opportunity to extend relationships with existing customers. In general, the goal is to offer these services globally so products can be repaired near to where they were purchased.

Now CMs will be looking at two more areas for possible expansion of postmanufacturing services. One is network installation services; the other is logistics (Dec. ’00, p. 3-4). Flextronics is pioneering both.

On the front end, as NPI (new product introduction) services become a more universal requirement, they will be offered in more locations. CMs will need to set up or acquire more and more NPI centers outside their manufacturing facilities.

As for vertical integration, a line has been drawn between those who fabricate their own PCBs and those who don’t. PCB fabrication is not for the dilettante. It is a capital-intensive activity that is highly regulated with respect to environmental discharges. For a nonfabricator, crossing that line is major undertaking if a CM wants to supply a large portion of its PCB requirements internally. So vertical integration of PCBs will continue to serve as one industry differentiator.

More recently, enclosures have emerged as another way to vertically integrate (Aug. ’00, p. 1-3). Unlike PCB fabrication, the number of CMs able to build metal enclosures is increasing. Communications OEMs are largely driving this trend. When a communications OEM outsources a bulky infrastructure product, it often makes sense to build the enclosure where final assembly takes place. Over the last two years, a number of CMs have added enclosure capabilities by acquisition, and there is no reason to believe that this M&A activity will stop any time soon.

Less clear is whether the vertical integration of plastic parts and plastic enclosures will catch on as an industry trend. Again, Flextronics is the trailblazer with its rollout of a global plastics capability (Dec. ’00, p. 2-3).

Prediction: In 2001, vertical integration will remain controversial, while the end-to-end service offering of horizontal integration will be promoted widely, not just among the largest CMs. Nevertheless, CMs will continue to take differing approaches to both strategies.

On the horizontal side, acquisitions will continue as the large CMs expand both front- and back-end services globally. Logistics, an area that typically receives scant attention from the EMS industry, will come to the fore in 2001. The industry will be watching Flextronics closely to see how it does with its newly acquired European logistics service. Chances are the company will look to add a logistics company in North America.

The most vertically integrated CMs will continue to promote that strategy as the way to go. If these companies as a group consistently put up higher margins in 2001, then their strategy will gain traction.

Optical will become a new measuring stick for technical competence in the EMS industry, and not just for the top tier. CSPs will become the norm.

Until optical product manufacturing burst on the scene last year, CMs had little to crow about when it came to manufacturing technology. After all, SMT had been around for nearly 20 years. Even the most advanced SMT packages, CSPs (chip scale packages), had been introduced some years ago.

Producing optical networking hardware requires new processes and new expertise (Oct. ’00, p. 1-3). Optical capabilities range from fiber handling and termination to optical signal testing. Those that have optical capabilities will flaunt them. And until these capabilities become commonplace, they will serve as a new measure of technical prowess in the EMS industry.

Meanwhile, CSPs, which not long ago had been considered state-of-the-art, will soon replace BGAs as the most widely used array package. Advanced IC Packaging and Market Trends, a report from Electronic Trend Publications, estimates that the number of CSPs will surpass BGA unit volume in 2001.

Prediction: As people grow more sophisticated about optical work, they will begin to distinguish among optical capabilities, which vary in degree of difficulty. At the high end is optical signal testing on a production scale. Much of the process development work in optical will center on production testing during 2001. If CMs are to take on significant amounts of optical system build, they will need to develop robust testing capabilities. In some cases, CMs and their OEM customers will share in this work, but it will remain hush-hush for the most part.

Internet usage within the EMS industry will shift from an emphasis on resolving component shortages to a theme of supply-chain collaboration.

The Internet proved an invaluable tool for spot buying of components during the shortages of 2000. Now that the shortages are easing, CMs and OEMs can turn their attention to fully using the Internet as a medium for rapid collaboration up and down the supply chain.

Among the various ways supply chain partners can collaborate, two are arguably the most important. Partners must be able to share product data including design output and product demand forecasts. The faster this information is relayed, the more efficient the supply chain.

Within the EMS industry, there is a saying – inventory is a poor substitute for information – or words to that effect. A traditional supply chain governed by a series of weekly MRP runs cannot always keep up with rapid changes in end market demand (Jan. ’00, p. 2-4). When MRP data along the chain is not up to date, one needs to add inventory as a safety cushion. But if OEM product demand changes can be transmitted rapidly down the supply chain through the Internet, then materials suppliers can provide an optimum response to a change in requirements.

A year ago, this collaborative planning scenario was in the trial stages. Now there is evidence that a growing number of CMs have bought into collaborative planning. For example, Jabil Circuit, MCMS, SCI Systems and SMTC are all listed as customers of webplan (Newport Beach, CA), which supplies an Internet-based planning system along with other supply-chain functions.

Prediction: The evolution of MRP will reach a new level. More and more CMs will be looking for systems that combine real-time planning with web functionality. Inventory reduction efforts will help push CMs in this direction.

The recent introduction of a PDX (product data exchange) standard by the National Electronics Manufacturing Initiative will help assure that supply-chain communication of product content over the Internet becomes a uniform practice in the EMS industry. By year end, XML-based PDX will be widely accepted throughout the industry, as smaller CMs follow the lead of the largest players.


Tools


How To Increase Output Without Adding Equipment

Profit analysis software makes it possible

Imagine you’re operating a high-mix EMS plant with, say, seven lines. Somebody shows you some software in a new category called advanced profit analysis. Instead of looking at profit per unit, this software calculates profit per minute. You’re told that the tool lets you analyze how profitable a product or production line is. It can also show you which improvement initiatives will actually produce a change in line output. You’re convinced so you try it.

After installing the software, you find out that of the 120 or so improvement initiatives that were running, only four or five will yield more output. Not only that, it shows you how much more profit a line will generate by improving in these areas. So these four or five areas immediately go to the top of the priority list. And pretty soon throughput starts going up dramatically. In fact, even you are amazed. Because within a few months of installation, your plant output has increased by a whopping 56%. And that’s without adding more lines. What’s more, the effect on the bottom line is just as dramatic. By making the improvements suggested by this software, you have increased your plant’s annual profits by more than $50 million.

Sounds too good to be true? These results came from the EMS industry’s first major installation of advanced profit analysis software from Maxager Technology (San Rafael, CA). Maxager will attest to this story, but is unable to disclose the customer’s name.

Still skeptical? Motorola Computer Group’s facility in Tempe, AZ, also uses the Maxager software in PCB assembly. “Since installing Maxager plant-wide in June of 2000, we have increased our output by over 30%. Maxager reports show us exactly where we need to focus our improvement efforts to achieve superior financial results,” states Dan Lombardi, director of operations at Motorola Tempe.

Maxager software captures the use of time at a strategic control point, which is the single manufacturing step that defines the cash generating capacity of a manufacturing system. In board assembly, this point typically occurs at pick and place. The Maxager tool keeps track of how time is divided among product runs, setups and downtime events at the control point. Prioritized reports show the profit potential available from improving yield and utilization.

To generate profit per minute for a particular product, operating expense and labor are allocated to each unit based on the time it spends at the control point. According to Maxager, traditional analysis based on profit per unit fails to reveal the true performance of an operation because time is not taken into account. Indeed, Maxager points out that among products with the same unit costs, some may generate high levels of profit per minute, while others produce low levels.

At the aforementioned EMS facility, there were two separate products, each generating a cash contribution – defined as the sales price minus raw materials cost – of about $1.5 million. One product made that amount in 35 days; the other took just a day and a half. So among other benefits of the software is its ability to show which products are the most profitable.

The cost to license the software depends on the size of the plant and the complexity of the installation. “At the low end, it might be a half million dollars up to several million,” says Dominic Haigh, Maxager’s VP of marketing. The unnamed EMS customer spent on the order of $2 million for the software.

“Our sales strategy is focused on the major EMS companies with revenues of at least several hundred million dollars. These companies can get the fastest return from improvements in utilization and profit margin that Maxager makes possible,” says Haigh.

Installation typically takes six to eight weeks. Data collection must be provided at the control point for each line. Often, the data Maxager needs is available from existing factory information systems. In some cases, a customer will need to add two touch screen stations for each SMT line. These stations provide the software with essential detail such as specific reasons for line stoppages. Unlike typical ERP software, business processes do not change when the Maxager package is installed.

Although new to the EMS industry, Maxager started developing profit analysis software over four years ago. The company has sold its solution to other industries and lists Goodyear and Nippon Steel among its customers. Besides Motorola, electronics industry users include Hitachi and Seiko-Epson.

Last year, consulting firm Arthur Andersen, formed a global alliance with Maxager for providing real-time profitability and pricing information to suppliers of B2B marketplaces.


News


Jabil Wins Marconi Bid

To play key role in Marconi’s new supply-chain strategy

Under a new agreement with Marconi, Jabil Circuit (St. Petersburg, FL) will purchase five operations of Marconi Communications and enter into a three-year supply agreement to manufacture existing and new products for Marconi. Jabil expects this agreement to generate over $4 billion in total business with Marconi. That is, the revenue represents existing and new products manufactured in acquired and current Jabil plants.

This is Jabil’s first OEM divestiture since its 1998 acquisition of HP LaserJet operations in PCB assembly.

Jabil will acquire four facilities in Europe and one in the US with a total of about 800,000 ft2. The European plants, all unionized, are located in Liverpool and Coventry, UK; Marcianise, Italy; and Offenburg, Germany. The lone US facility is in Bedford, TX. As a result of this deal, 2700 to 2900 Marconi employees are expected to join Jabil. Plants will be transferred to Jabil on a staggered schedule from May to August 2001.

Subject to preclosing adjustments, the purchase price consists of assets worth about $240 million and goodwill of about $146 million for a total value of about $386 million. Each partner may earn extra incentive payments based upon business growth, in the case of Marconi, and operational performance, in the case of Jabil.

The Marconi operations are primarily engaged in the manufacture of access products for fiber to the curb, fiber to the home and ADSL; optical transmission products in the SDH/SONET and DWDM categories; and broadband switching equipment. Positioning itself as the leading optical networking company outside North America, Marconi claims a 35% share of the world SDH market. SDH (synchronous digital hierarchy) equipment converts data from an electrical signal to an optical signal and provides traffic management. DWDM (dense wave division multiplexing) increases transmission capacity by putting information on different wavelengths within a single fiber. Activities to be acquired include new product introduction, PCB assembly, subassembly, standard-product final assembly, and repair services.

For Marconi, this deal reflects a new supply chain strategy, which was outlined in October of last year (Oct., ’00, p. 11). Formed through a number of acquisitions including Reltec and Fore Systems, Marconi ended up with a supply chain that needed to be revamped to meet the changing needs of its business. So about a year ago, the company went to work on a global supply chain strategy. “Prior to that, the supply chain was fragmented where we had managing directors of each country managing their incountry manufacturing content. That created probably more local optimization at the expense of global optimization,” explains Bob Doucette, executive VP of global supply chain for Marconi Communications.

A review of manufacturing sites confirmed that Marconi had a lot of vertically integrated sites that were not optimal in meeting the changing needs of its customers. “We went plant by plant, rationalized strengths and weaknesses, and put together a plan to sell off those parts of our business that we felt weren’t core,” says Doucette.

Based on rough estimates, Marconi’s level of outsourcing will increase from about 20 to 25% before the transaction to about 60% afterward. That means Jabil is getting about 40%, which is above Marconi’s previous limit of 25 to 30% with one supplier.

“But we’re definitely not sole sourced at this point,” Doucette points out. Marconi also uses other providers including Solectron. “Obviously, this expands our relationship with Jabil very significantly. But we have a very good business relationship with Solectron and plan to continue to do business with them as well,” he adds. Doucette also confirms that there are no changes in Marconi’s relationship with APSCO International (July ’00, p. 7) or Viasystems Group (Feb. ’00, p. 9-10).

The work going to Jabil as a result of this deal is primarily PCBA. As part of the new supply-chain strategy, Marconi is getting out of in-house PCBA. “In terms of PCBA business in general, they [Jabil] have a majority share of it, but don’t have all of it,” says Doucette.

This strategy also calls for Marconi centers to perform final assembly and configuration in the UK, US, Italy, Ireland and Germany. Both Lucent and Nortel have adopted similar approaches that rely on centers of this type.

As a linchpin in the Marconi strategy, Jabil benefits from the transaction in a number of ways. Three of them can be readily summarized. “It’s a major relationship expansion in both a targeted product sector and a targeted geography,” said Tim Main, Jabil president and CEO, in a conference call with analysts.

That geography is Europe, a region where Jabil has been working to improve its presence and penetration. “This is a step function increase in our European presence,” Main told analysts.

“More than 85% of the assets and the people are in Europe,” he noted. “So this is a very Euro-centric transaction for Jabil.”

The deal “will take our [European] business to approximately a two-billion-dollar run rate and easily make us one of the top three or four EMS providers in the European marketplace, let alone overall,” Main remarked.

In the US, the Bedford facility will give Jabil a Texas presence that the provider currently lacks. This site puts Jabil within the telecom corridor of Texas where the company believes there are strong growth prospects.

In addition, Jabil will gain deeper penetration of the communications sector and specifically the optical business. The provider sees continued high growth for the optical business, particularly in the dark fiber and DWDM areas. Dark fiber refers to fiberoptic cable that has been laid for access but does not yet carry signals. Jabil reports that about 70% of the Marconi business will come from optical and optical-related products.

Another motivation for Jabil is the ability to expand its relationship with Marconi. That relationship started with Jabil providing EMS to Fore Systems, now part of Marconi. Jabil estimates that revenue from existing and acquired Marconi business will increase to about $1.3 billion in fiscal 2002. For that fiscal year, “Marconi will become easily a top-three customer…potentially our second largest customer,” said Main.

Marconi Communications appeals to Jabil as a high-growth customer that is oriented toward new products. “In contrast to many telecommunications companies in the world, they are not burdened with a high degree of legacy, narrow-band products,” Main points out.

Other benefits will accrue as well. Jabil will add competencies in advanced PCB assembly, optical subassembly and final assembly, new product introduction, microwave, wireless, mechanical and repair services. “We’re also getting very strategic capabilities for higher complexity final assembly of core optical products. This is an area that’s not done much in our industry today. It’s a target for Jabil Circuit, and probably is for some of our competitors. But we think some of the elements of this transaction will give us a leg up in that area,” said Main.

On the financial side of the transaction, Jabil expects it to be both GAAP and cash accretive in fiscal 2002.

Capacity utilization is another plus. Jabil describes the utilization rate at the Marconi facilities as very high. That condition will give Jabil the luxury to focus on integrating them during the first year without having to add other customers. Long-term, however, these plants will be expected to service a diversified customer base.

Marconi selected Jabil for several reasons. Among them are Jabil’s past performance in connection with Marconi and the provider’s ability to help Marconi scale, provide flexibility, move new products to market and drive cost reduction, according to Doucette. Marconi also liked the fact that Jabil is investing in photonics assembly and fiber splicing and developing competencies there. “Down the road there will be opportunities for us to take advantage of that at the right time,” he says. Another factor was company culture. “They presented themselves as a very good cultural match for the 2900 employees who are being divested,” notes Doucette. Finally, Marconi believes that as a top-three customer of Jabil, Marconi will receive the necessary attention and long-term support.

SCI To Buy Nortel Lab

SCI Systems (Huntsville, AL) has inked an agreement to purchase Nortel’s Physical Design Implementation (PDI) Rapid Systems Laboratory in Kanata, Ontario, Canada. SCI and Nortel have also agreed to enter into a multiyear, multimillion-dollar supply agreement by which SCI will provide early prototyping services.

With about 80 employees, the lab specializes in concept development and early prototyping across Nortel’s product portfolio.

The purchase will expand SCI’s new product introduction capability. SCI says this deal moves it further toward a global engineering strategy of earlier involvement with its customers.

Meanwhile, SCI closed on the first phase of its recent outsourcing agreement with Ericsson, whereby SCI will take over production of Ericsson radio base stations in Lynchburg, VA (Oct. ’00, p. 7). SCI bought assets and leased 378,000 ft2 of office, manufacturing and warehouse space. About 1800 Ericsson employees have joined SCI.

Scheduled to close in early April, the second phase of this deal involves the acquisition of Ericsson’s Node Production Center in Lynchburg.

C-MAC Obtains EMS Operations from Honeywell

C-MAC Industries (Montreal, Canada) has acquired Honeywell’s contract manufacturing operations in Melbourne, FL, and Juarez, Mexico.

In Melbourne, C-MAC added a 141,000-ft2 plant with about 400 people, while the Juarez plant has 52,000 ft2 and about 650 employees. Between the two facilities, there are nine SMT lines as well as one through-hole line.

Virtually all of the work done by these operations comes from customers outside Honeywell. Customers include Motorola and a number of other major telecom companies.

This acquisition enhances C-MAC’s strategy to provide full systems solutions to OEMs in communications. The offerings of the two facilities include flexible and rigid board assembles, back panels, electro-optical assemblies, enclosures and system components. Product capabilities include RF, cellular, wireless and optical.

The acquired operations went under the names Honeywell Electronic Manufacturing Services, Inc. and Honeywell EMS de Mexico, S.A. de C.V. in Florida and Mexico respectively. These operations were formerly part of Johnson Matthey Electronics, which was acquired by AlliedSignal in 1999. AlliedSignal then merged with Honeywell and took the Honeywell name.

Contract manufacturing at the Florida operation dates back to 1987, when it started out as an independent CM. Johnson Matthey acquired it in 1995 and opened the Juarez plant in 1996.

As a result of this deal, Honeywell no longer has any units in contract manufacturing. “It’s a business they were not in,” says Bill Cunningham, GM/VP of the acquired operations.

C-MAC, on the other hand, is very much in the EMS business. “C-MAC allows us to offer a greater portfolio of services to our customers,” says Cunningham. “Its business model offering services from design to high-volume production, global manufacturing, and selective vertical integration will be of great benefit to our customers.”

Deals done…Solectron (Milpitas, CA) successfully completed its tender offer for Singapore-based NatSteel Electronics (Nov. ’00, p. 1-3). About 99.5% of NEL’s issued and paid-up capital was tendered. After Solectron obtains the remaining shares through compulsory acquisition, NEL will become a wholly owned subsidiary of Solectron….Sanmina (San Jose, CA) has taken a 49.9% equity stake in INBOARD (Karlsruhe, Germany), a manufacturer of complex PCBs and a former wholly owned subsidiary of Siemens AG. This is Sanmina’s first investment in a European PCB fabrication facility….Plexus (Neenah, WI) has closed on its acquisition of e2E Corp., a PCB design and engineering service provider (Oct. ’00, p. 9). Plexus paid with 463,000 shares of its common stock….PEMSTAR (Rochester, MN) has increased its ownership of PEMSTAR-HongGuan Pte Ltd. to 100%. The Singapore-based operation, which will be renamed PEMSTAR-Singapore, has been a precision process and test equipment engineering and manufacturing business, focusing primarily on the storage industry. PEMSTAR-Singapore will expand its scope to include other target markets and will support PEMSTAR’s locations in Bangkok, Thailand, and Tianjin, China. PEMSTAR is also opening its international procurement office at the Singapore operation, which is being relocated to a larger facility. The operation will also be expanded to include a ProCenter (Product Realization and Optimization Center) for product and equipment design, prototype, and equipment replication services.

Alliance made…Sparton (Jackson, MI) has formed an alliance with Gaston Electronics, a CM in Mt. Holly, NC. The addition of Gaston to the Sparton Alliance network provides design and manufacturing capabilities in the Mid-Atlantic region of the US. Gaston is the electronics division of a major textile equipment manufacturer.

Manufacturing to stop at Motorola facility…Motorola plans to cease manufacturing operations at its Harvard, IL, campus and move manufacturing there to lower cost Motorola sites and to the company’s outsourcing partners. About 2500 manufacturing jobs will be cut.

New programs…Microsoft has outlined manufacturing and logistics plans for its Xbox video game system to be produced by Flextronics International (San Jose, CA, and Singapore). Microsoft plans to launch Xbox in North America and Japan in fall 2001 and in Europe in Q1 2002. Flextronics will initially establish regional Xbox manufacturing operations in Mexico and Hungary. Microsoft’s long-term plan is to open a manufacturing facility in Asia….SCI Systems will manufacture indoor units of a broadband wireless access system for Floware Wireless Systems (Or Yehuda, Israel). Turnkey production will take place at SCI’s plant in Irvine, Scotland….PEMSTAR will develop and build automated assembly and testing equipment for the production of optical components in new digital media launched by DataPlay (Boulder, CO). The provider will also manufacture optical components for this program as well as design and build assembly automation for producing a disc cartridge….Comtel Electronics (Tustin, CA) will produce data transmission products for Telenetics (Lake Forest, CA). Telenetics recently licensed these products from Motorola. All inventories, production and test equipment associated with these products are being transferred to Comtel from Motorola’s existing contract manufacturing facilities in Massachusetts.

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