MMI June 2002
Vol. 12, No. 6: June 2002
Table of Contents
Providers Beefing Up Capabilities in China
If there is one area that has escaped the ravages of the downturn, it’s China. As a center for electronics manufacturing, China is thriving like no other region. Unless one has been in a coma for the last year, this is not news. Since the early days of the technology downturn, more and more OEMs have sought to lower costs by outsourcing to China. A year ago, a number of EMS providers were already stepping up their investments in China (May ’01, p. 1-3). But now the game in China has changed. It’s no longer enough to sell low-cost capacity in China. Still gripped by the downturn, customers want the lowest possible landed cost. Costs must be reduced not just in manufacturing, but throughout the supply chain and product cycle. And the challenge is to do so for an expanding range of products covering both the export and domestic Chinese markets.
Providers are stepping up to this challenge by acquiring capabilities – not simply floor space – in China. In two recent cases, deals were made for materials suppliers with Chinese operations. One of the keys to success in China is the ability to obtain parts there because the largest potential cost savings in China lie in locally sourced materials, not labor. This fact is often overlooked in discussions of China. So it’s no surprise that two vertically integrated providers, Flextronics and Sanmina-SCI, have announced acquisitions on the materials side.
Earlier this year, Sanmina-SCI acquired Denco International, an enclosure manufacturer with a 25,000-m2 facility in Shenzhen, China (Feb., p . 7). This deal gave Sanmina-SCI its first enclosure facility in Asia. Flextronics has made an offer to acquire NatSteel Broadway, a plastics and stamped metal supplier operating mostly in China (see below ).
As the Chinese market matures, demand arises for an end-to-end service offering. Solectron recently bolstered its offering on the after-sales end by acquiring a Chinese repair company (May, p. 4-5).
Another capability that providers in China are finding valuable is the ability to manufacture for the domestic market, especially the telecom sector. But telecom manufacturing often takes place outside of Southern China, where EMS facilities are now concentrated. The pursuit of communications infrastructure products, for example, has led both Flextronics and Jabil Circuit to invest in Shanghai. Flextronics, which is already in Shanghai, has started construction of a new industrial park there (April, p. 8), while Jabil has announced a deal to acquire a Lucent joint venture in Shanghai (see below).
What makes China especially attractive these days is a fortuitous confluence of several big trends:
· Cost sensitivity has reached a fever pitch, and China is generally acknowledged as the world’s low-cost leader for manufacturing.
· The supply base infrastructure in China is maturing, allowing OEMs to take even more cost out of their products through locally sourced materials.
· The Japanese market for outsourcing is opening up, and much of that work will end up in China.
· China represents a huge and growing market for electronics. Many OEMs who are EMS customers want to serve that market, which should benefit from China’s membership in the WTO. There are also opportunities to manufacture for Chinese entities. As a recent example, Elcoteq will act as EMS provider for a Chinese company’s line of mobile phones (see News, p. 7).
As a result of these trends, China will likely remain the fastest growing center for EMS, at least for the near term. Unless disruptions or shortages hold up the Chinese supply chain, China will remain on a roll. Take Flextronics. The provider expects its revenue in China to grow by about 50% in the current fiscal year.
What’s more, China will continue to attract EMS industry investments, both greenfield and M&A. Here are two examples of the latter, both giving the acquirer new capabilities in China.
Flextronics Wants NatSteel Broadway
To add capabilities and management in China, Flextronics (Singapore) has made an offer for NatSteel Broadway Ltd (Hong Kong), a Singapore-listed supplier of plastic and metal components, mold design and fabrication, and PCB and box assembly. Priced at S$3.23 cash per share, the offer equates to a deal value of about S$653 million, or about $364 million, for the outstanding shares of NatSteel Broadway. NatSteel Ltd intends to accept the offer for its majority interest in NatSteel Broadway.
With all but one of its manufacturing facilities in China, NatSteel Broadway serves customers in the consumer electronics, automotive, computer peripherals and office automation segments. But the company’s capabilities in consumer electronics are what Flextronics covets. “The driver behind the business is great capabilities in true consumer products, which is an opening-up business for us because of Casio,” said Michael Marks, Flextronics’ chairman and CEO, in the company’s latest conference call. The provider recently announced an agreement to manufacture consumer electronics for Japan’s Casio (May, p. 2-3).
Marks added that NatSteel Broadway has “tremendous capability in both plastic and sheet metal tooling, particularly in the sheet metal area.” He reported that the company has 600 tooling engineers in China turning out around five or six tools a day.
That capability in China will come in handy. Flextronics plans to move the majority of its Casio business into a new consumer electronics organization in the Shenzhen area to be formed by combining Flextronics operations in that area and NatSteel Broadway. To be successful with the type of consumer products that Casio has, said Marks, you need to have NatSteel Broadway’s kind of plastic and sheet metal capabilities such as sheet metal stamping and metal tooling.
Producing thousands of tools per year as NatSteel Broadway does “is a strategic capability that we are not really very good at,” said Marks. “So we’re picking that up because we have an opportunity to get billions and billions of more business that uses that capability.”
NatSteel Broadway will also give Flextronics a seasoned management team who will help with the company’s rapid expansion in Asia. “Our team in Asia, both Malaysia and China, are very busy and very stretched,” said Marks. When closed, the Casio and NatSteel Broadway deals together will add 10,000 employees in Asia.
NatSteel Broadway’s operations are mostly based in the Southern China province of Guangdong. The company lists six manufacturing facilities in five Guangdong locations plus a joint-venture facility in the Northern China city of Qingdao and a smaller operation in Sárbogárd, Hungary. Manufacturing space totals 1.2 million ft2.
For 2001, NatSteel Broadway recorded sales of about $188 million and an after-tax profit margin of 10.1% including minority interests. Plastic and metal components and mold design and fabrication made up 70% of sales in 2001. Assembly services accounted for the remaining 30%. According to the latest Flextronics conference call, NatSteel Broadway’s current run rate is $200 million a year.
Major customers include Philips, VCR maker Funai, Siemens VDO, Korea’s LG Electronics and Haier, a major appliance manufacturer based in China. Haier is Natsteel Broadway’s joint venture partner in Northern China.
Subject to shareholders’ approval, NatSteel Ltd has pledged its 51.6% interest in NatSteel Broadway to Flextronics. The transaction is in line with NatSteel Ltd’s restructuring objectives of enhancing shareholder value and focusing management resources on its core steel and industrial businesses. NatSteel Ltd also cited these objectives when it sold its stake in NatSteel Electronics to Solectron in December 2000.
NatSteel Ltd stated that NatSteel Broadway would be better off as part of a major global provider.
Another NatSteel Broadway shareholder, Ockham Holdings, has promised its stock, bringing the pledged shares to 72.9% of the issued share capital.
In addition to the approval of NatSteel Ltd shareholders, the tender offer for NatSteel Broadway is also contingent on Flextronics controlling 90% or more of the company’s voting rights at the close of the offer. The offer is expected to be complete in August.
Lau Leung Yin and Yan Yuet Wah, NatSteel Broadway’s managing director and executive director respectively, are expected to join Flextronics when the offer becomes unconditional.
Jabil To Acquire Assets in Shanghai
Will manufacture for Lucent
Under a new agreement, Jabil Circuit (St. Petersburg, FL) intends to purchase the manufacturing assets of a Lucent joint venture in Shanghai, China. Jabil aims to acquire a 325,000-ft2 facility in Shanghai along with equipment and inventory. The provider will offer jobs to the 500 employees there. In addition, Jabil has obtained a three-year contract whereby the acquired facility will continue to manufacture optical, switching and other communications infrastructure products for Lucent.
Lucent Technologies (China) Co. and its partners in the joint venture, Lucent Technologies of Shanghai (LTOS), have agreed to sell the LTOS assets to Jabil. The other partners are Shanghai Optical Communications Development Co., Shanghai Posts & Telecommunications Equipment Co. and Shanghai Jiu Shi Corp.
The Shanghai facility houses high-mix manufacturing with capabilities in PCB assembly and system integration and testing. The facility also has expertise in electrical, mechanical, CAD and software design.
“This Shanghai operation will be an important expansion of our Asian manufacturing capabilities. It provides Jabil with key competencies in complex optical assembly and design services,” stated Bill Peters, Jabil’s senior VP of operations. “Shanghai is a primary communications equipment hub for China, and this transaction significantly enhances our ability to provide key services for our communications customer base in a critical growth market. The agreement also strengthens our relationship with Lucent.”
This agreement, said Lucent, results from its strategy to grow its relationship with major EMS providers such as Jabil. In another deal, Lucent recently outsourced optical work from its North Andover, MA plant in the US to Solectron (see News, p. 6-7).
Jabil expects to complete the transaction by late summer. Financial terms were not disclosed.
Design Services Tie IC Suppliers To EMS Providers
Motorola launches program for EMS providers and others doing outsourced design work
As EMS providers migrate further into design services, symbiotic relationships are forming between providers and semiconductor suppliers. While these alliances are not all alike, they do show that each side has something to gain from the other. Semiconductor suppliers want to utilize providers’ design arms as a means for selling more chips when OEMs outsource design work. Providers want to incorporate semiconductor technology in their design services.
One way that an IC supplier and EMS provider can team up is through an ongoing developers program sponsored by the chip supplier, as SMTC (Toronto, Canada) will attest. Closer ties between IC suppliers and their EMS customers are also appearing in a new form. In at least two cases, a semiconductor supplier has set up a program that will serve the design needs of a group of EMS providers. The latest to do so is Motorola’s Semiconductor Products Sector (SPS) based in Austin, TX.
Last month, Motorola unveiled its Design Alliance program to assist EMS providers, distributors and design houses who work with Motorola’s embedded solutions. To help with the design process, alliance members gain access to SPS technical information, resources, training and discounted development tools. On the EMS side, Celestica, Flextronics Design, Solectron, and Solectron’s subsidiary Force Computers have signed up for the program.
In order to do product design, providers need ready access to technical information about the chips they specify. Semiconductor suppliers such as Motorola want to encourage providers to design in their chips by providing that access.
Members of the Motorola program can use a secure extranet site to gain privileged access to technical information such as errata sheets, product change notices and roadmaps. “With product life cycle information in hand, customers have all the information they need to make the right component selections,” said Frank Zarowny, director of technical incentive programs at Motorola SPS.
Normally, a company would have to sign a nondisclosure agreement to obtain such information. Through the Design Alliance agreement, members obtain the same blanket access to technical information as a Motorola application engineer would have.
This is the first step of a multiphase program. The next step is expected to include the development of reference designs. Ultimately, Motorola may extend the program to system-level solutions involving Motorola technology.
“Observing the growth in design outsourcing over the last two years, we feel that access to technical resources will become very, very critical. The design houses, especially the large EMS companies, are very well positioned take advantage,” said Zarowny.
Motorola is also targeting the Design Alliance program at distributors who have invested in design capabilities as well as independent design houses. Over 100 design houses have applied for enrollment since the program was launched.
The Motorola program follows one that Intel announced last year for a group of providers. Other semiconductor suppliers are looking at the extent of design outsourcing and its impact (April, p. 2-3).
SMTC mines developers programs
Joining an existing developers program gives an EMS design group another way to couple with an IC supplier. Together with its EMS design partner, the IC supplier can offer its OEM customers a full design solution that will put a new device into a customer’s product without delays.
“We’re seeing, in particular, semiconductor companies introducing their parts in conjunction with a solution that will accelerate the adoption of that part into a volume production opportunity,” said Richard Baxter, senior VP of Global Design for SMTC.
Earlier this year, SMTC’s design services and technology development arm, SMTC Design, joined Xilinx’s XPERTS 3rd Party Developers Program. Xilinx (San Jose, CA) established this program to provide its customers with access to certified design firms with expertise in Xilinx programmable logic.
SMTC also belongs to TI’s developers program for DSPs. Under this program, the two companies have collaborated on reference designs, which can act as a sales tool for both TI and SMTC. In such cases, a reference design allows TI to showcase a new DSP in an application, while customers are introduced to SMTC as TI’s engineering partner for that design. Customers then have the option of using SMTC to design the part into their products.
For example, when TI introduced a DSP for low-cost motor control, its applications engineering group developed a number of algorithms for motor control with a DSP. Starting with the TI silicon and those algorithms, SMTC designed peripheral circuitry and wrote software to turn the algorithms into a functional design that could be demonstrated.
This example also illustrates that product design can be separated into two elements. “There’s the domain expertise, those key competencies that are the essence of a company’s product or intellectual property. And then right behind that are the engineering skills necessary to produce tangible products that incorporate those core intellectual property elements,” explained Baxter. In this case, TI provided domain expertise in the form of its silicon expertise as well as its ability to create the algorithms from its knowledge of the application. SMTC furnished the engineering skills to create a functional design.
Of course, OEMs have traditionally provided the domain expertise, whether they do a complete design or outsource the non-IP elements of the design. But when an entire design is outsourced, the domain expertise must come from somewhere else. As mentioned above, semiconductor suppliers can act as one source of that expertise. EMS providers with lots of design experience in particular product areas may also supply domain expertise in those areas.
Flextronics Acquires Swedish Design Firm
In pursuit of more development projects, Flextronics (Singapore) has been busing building up its product design capabilities. The provider intends to acquire BlueLabs AB, an engineering services company with about 280 employees and five design centers in Sweden.
This is one of three design groups being added by Flextronics during the quarter. The other two are a design group in South Africa and a group from Hewlett-Packard, with whom Flextronics is codeveloping several future products. Flextronics has released no further information on these two deals.
However, the provider is talking about BlueLabs, which will allow Flextronics to expand its range of engineering services in Europe. At present, Flextronics’ design expertise there is focused primarily on PCB layout, industrial and mechanical design, test development and industrialization. BlueLabs will add hardware and software development capabilities to give Flextronics a full service for product design in Europe. BlueLabs’ experience mainly comes from the telecom, automotive, medical and semiconductor equipment sectors.
Subject to regulatory approval, Flextronics will acquire BlueLabs from Frontec AB, an IT consulting company listed on the Stockholm Stock Exchange. Financial terms were not disclosed.
BlueLabs has contracts with companies such as Ericsson and Nokia. The engineering firm has been developing its hardware and software expertise for more than 15 years.
BlueLabs will become a wholly owned subsidiary of Flextronics Design, a unit of Flextronics, and BlueLabs’ offices will be colocated with those of Flextronics in Linkoping, Stockholm and Malmo, Sweden. The engineering firm’s facilities in Gothenburg and Pajala will give Flextronics two more locations in Sweden.
Worldwide, Flextronics will increase its design engineering staff from about 1500 at the start of the quarter to “closer to 2000” at the end of it, according to chairman and CEO Michael Marks.
XeTel Teams Up With Four Firms
To help customers with new product development, XeTel (Austin, TX) has formed the XeTel Design Alliance with four other companies. They are VI Technology, an engineering services provider of test, measurement and automation systems; M3 Design, a product development firm; Professional Testing, a test lab for certifying products; and Tekgenix Corp., a provider of consulting and development services in hardware, embedded software and DSP algorithms. All but Tekgenix are headquartered in Austin, TX, while Tekgenix is based in Dallas.
“The growing demand we have seen for our design and prototype capabilities has prompted this expansion of our Alliance team,” stated Angelo DeCaro, XeTel’s president and CEO.
EMS Deals Draw Attention From Regulators
Significant EMS M&A activity has lead to heightened scrutiny from regulators. What’s more, the EMS industry should expect this scrutiny to grow more intense.
MMI Top 50 companies completed 75 deals in 2001, including significant horizontal consolidation between several of the top EMS providers (Feb., p. 2-4). In addition, there was a substantial number of OEM divestitures and outsourcing agreements. Many of these transactions required antitrust clearance from countries around the world, including the US, the European Union or individual member states in some cases, and Brazil.
In many jurisdictions around the world, antitrust laws have been enacted to require preclose notification and clearance of transactions that exceed a certain size. In the US, for example, parties to a transaction valued at more than $50 million generally must notify the Department of Justice and the Federal Trade Commission of the transaction and must await clearance prior to closing the deal. Similarly in the European Union, when a company has EU turnover exceeding statutory thresholds, it must report such deals to the European Commission within seven days of signing an agreement. Again, the parties must await clearance before closing. In each of these jurisdictions, the initial waiting period is approximately one month. Any extended review could take between four months and one year. To date, all EMS transactions have cleared within the first month.
What are regulators asking? For example, the Merger Task Force (MTF) in the European Union now routinely asks EMS providers and their transaction partners to provide revenue and market share break-downs by end-user market segment and by type of manufacturing such as PCB assembly and box build. The MTF uses this data to determine whether the transaction will give an EMS company sufficient market power – that is, the ability to control price or output – in any segment of the EMS industry. Generally, a 15% share in a segment is sufficient to raise the eyebrows of the MTF. Some providers tiptoe close to that magic threshold when one looks only at outsourced manufacturing.
The EMS industry has good answers for the regulators. First, the very nature of the EMS industry is procompetitive, and regulators seem receptive to this notion. It is very persuasive to explain that EMS providers enable OEMs to focus on their core competencies. In addition, OEM customers act as a significant competitive constraint. Outsourcing contracts are short in duration, and OEMs often play EMS providers against each other during the bid process. More importantly, OEMs – if ever dissatisfied with their EMS provider because of pricing – could easily switch to another provider (or an ODM in some cases) or, more significantly, return such production in-house. This in-house capacity, in fact, has been a significant factor in several jurisdictions’ decisions to quickly clear EMS transactions.
The EMS industry should expect scrutiny to continue and, indeed, become more intense over the next several years. Because of the substantial number of OEM divestitures in the industry, regulators have begun to wonder whether the worldwide manufacturing capacity in some industries is becoming too concentrated. Although the focus clearly will be on the top five or so EMS providers, scrutiny will follow wherever there is concentration. Thus, companies with regional strength or those that focus on one segment of the EMS industry should expect further review of their deals.
What does this scrutiny mean? EMS providers likely will need to spend more time with their antitrust attorneys to provide answers to questions from regulators around the world and may have to respond to multiple requests for information. But it is quite likely that authorities will continue to clear these transactions without asking too many questions.
Still, as the consolidation trend among the top providers in any EMS segment continues, the industry should anticipate that regulatory review will become an increasingly significant factor in the timing of a deal. So if an initial request for information does not yield answers sufficient to satisfy regulators’ concerns, an extended review – again, up to four months or more – is possible. Ultimately, somewhere down the line, EMS providers in a more concentrated industry will have to consider whether they are willing to offer any relief to the regulators, such as government-imposed divestiture of facilities, to allay competitive concerns so a deal will go through.
– by Scott A. Sher, attorney, Wilson Sonsini Goodrich & Rosati in Palo Alto, CA. This firm represents several of the largest EMS providers.
Another After-Sales Deal for Solectron
Solectron (Milpitas, CA) continues to enhance its after-sales services business, Solectron Global Services, with the acquisition of Magnetic Data Technologies, or MDT (Goleta, CA), a global provider of repair and logistics services for the communications, computer and storage markets. MDT is one of the world’s largest independent providers of hard-disk drive screening and repair services.
The deal reflects Solectron’s strategy to expand its Global Services presence in commodity segments such as PCB assemblies, LCDs and hard-disk drives. Solectron is looking for growth from such commodity markets, where the provider can offer complete systems solutions.
This is the second repair services deal Solectron has disclosed after last month’s acquisition of a Chinese component repair company (May, p. 4-5). Indeed, within the EMS industry Solectron has been what could be described as the most active deal maker in the after-sales arena. Since the beginning of last year, Solectron has notched five acquisitions of after-sales services companies. Solectron wants to grow rapidly in the after-sales services market, which it has estimated as a $177-billion opportunity.
With 2300 employees, MDT operates repair facilities in six locations: Goleta, CA; Richardson, TX; Nashville, TN; Chihuahua, Mexico; Turnhout, Belgium; and Singapore. MDT handles logistics and contract repair not only for disk drives but also for printers; tape drives; CD-ROM, CD-RW and DVD drives; cellular and mobile phones; pagers; digital telephone sets; routers and other network equipment; LCD projectors; and computer PCBs. Customers include HP, Western Digital, Hitachi, Quantum, Philips, EMC, Iomega, NEC, Nokia, Samsung, Yamaha and 3Com.
MDT’s Singapore site, a fast hub, will expand Global Services’ presence in Singapore, where Global Services had started up an operation. Solectron will transfer its existing Global Services employees in Singapore to the MDT site. In addition, the MDT Chihuahua site, providing lower-cost, fast-turn services for North America, will complement Solectron’s existing after-sales site in Guadalajara, Mexico, according to Solectron.
Founded in 1982, MDT was a private company controlled by Dubilier & Company, a New York-based investment firm.
Finmek Acquires Automotive Division
Finmek Group (Padova, Italy), which encompasses both EMS and OEM businesses, has acquired the Electronic Systems division of automotive supplier Magneti Marelli from Fiat. This deal puts Finmek on the map as an electronics supplier to the automotive industry. Based on the number of people and manufacturing sites added, the deal may well be the largest automotive acquisition so far associated with the EMS industry.
The transaction was valued at 200 million euros, or about $186 million. The Magneti Marelli division generated 2001 revenue of 441 million euros. According to Finmek, the division is the number-one player in Italy for automotive electronics.
With this deal, Finmek becomes a global manufacturer. The company gains manufacturing facilities in Amiens, France; Barbera del Valles, Spain; Hortolandia, Brazil; Tepotzotlan, Mexico; and Guangzhou, China. The deal also gives Finmek R&D and manufacturing sites in Chatellerault, France, and Corbetta, Italy; R&D and service centers in Nanterre, France, and Boeblingen, Germany; and an R&D activity in Venaria, Italy.
Finmek has also acquired about 3000 Magneti Marelli employees, of which 450 are dedicated to R&D activities in the automotive sector.
As a supplier for cars, commercial vehicles and motorcycles, Magneti Marelli designs, manufactures and sells in such areas as instrument clusters, telematics and navigation units, and body electronics and networks. The acquired division serves a number of automobile manufacturers besides its former parent Fiat. They are Alfa Romeo, Audi, Daimler Chrysler, Ferrari, Ford, GM, Lancia, Maserati, PSA Group, Renault-Nissan and Volkswagen.
Finmek intends to develop further the division’s current activities with these customers as well as to enter new business areas within the automotive sector. Before the acquisition, Finmek mainly acted as an automotive subcontractor and did not have significant penetration in the sector.
What’s more, the deal will put Finmek in a position to provide EMS for activities previously outsourced to Finmek competitors. On the OEM side, Finmek will retain the Magneti Marelli division’s OEM activities including R&D as a core business in the automotive field.
Finmek is evaluating the possibility of offering its enhanced capabilities in development and global manufacturing to companies outside the automotive sector or those in geographic areas where Finmek previously had no facilities.
Started in 1994, Finmek is an Italian holding company owned by the Fulchir family. The company focuses on four main business areas: telecom, IT, automotive and public utilities. Finmek has acquired both OEM product and EMS businesses. On the EMS side, the company has been a consolidator in the Italian EMS market.
More deals done…Solectron has closed the deal to buy equipment and inventory from Lucent’s facility in North Andover, MA. The provider paid about $100 million for the assets. This previously announced deal makes Solectron the primary EMS provider for Lucent’s advanced optical systems (April, p. 5-6). A-Plus Manufacturing, a Solectron company, has hired about 540 Lucent employees, nearly a third of whom will work on a temporary basis during the transition….Sanmina-SCI (San Jose, CA) has completed the purchase of Alcatel’s facility in Cherbourg, France (Feb., p. 6; April, p. 6). This transaction marks the second phase of a divestiture that also includes a Gunzenhausen, Germany facility sold to Sanmina-SCI in April and a plant in Toledo, Spain, which the provider expects to acquire by the summer….VOGT electronic (Erlau, Germany) has increased its stake in FUBA Printed Circuits Tunisie S.A., a PCB manufacturer in Bizerte, Tunisia, from 13.75% to 51%. The deal is subject to approval of Tunisian authorities. VOGT is an MMI Top 50 provider that also manufactures components and PCBs.
New programs…StorageTek (Louisville, CO), a data storage OEM, will outsource its card manufacturing operations in Colorado and Puerto Rico to Sanmina-SCI, which will absorb the work within its existing operations. Outsourced activities include new PCB build, new product introductions, some repair work, and other manufacturing services. StorageTek is an existing customer of Sanmina-SCI….Guangzhou Southern High-Tech Co. (Soutec), a Chinese state-owned company specializing in mobile phones and other portable telecom products, has chosen Elcoteq (Espoo, Finland) as its manufacturing partner. Elcoteq will support Soutec by providing a full range of EMS from Elcoteq’s Dongguan, China plant for a series of GSM mobile handsets. In addition, Elcoteq will manufacture the GiSMO Communicator for Sweden’s Wireless House AB. This product transforms Compaq’s iPAQ PDA into a mobile phone and wireless broadband Internet tool. Production of complete units will take place at Elcoteq’s plant in Tallinn, Estonia. Elcoteq will also provide NPI services including development of assembly and test lines….Honeywell Aerospace Electronics Systems has expanded its relationship with MSL (Concord, MA) as a supplier of PCB assemblies for Honeywell’s products in commercial and private aviation. MSL will supply Honeywell with design, test and production services from multiple global locations that specialize in complex, high-mix manufactur-ing….Dutch subsidiaries of Fluke Corp. (Everett, WA) and PEMSTAR (Rochester, MN) have extended their engineering and manufacturing agreement for an additional three years. PEMSTAR has been designing and manufacturing test and measurement tools for Fluke since May 1999. PEMSTAR has also been selected to support the investigation and development of technologies for the next generation of Fluke’s ScopeMeter products. In addition, PEMSTAR will supply production equipment and manufacturing services for Cordis’ CYPHER Stent program. Cordis is a Johnson & Johnson company. The stent is designed to deliver a drug into a coronary artery….VOGT electronic will take over production of reception systems developed by RecepTec (Hildesheim, Germany) for the European automobile industry….Citing its expertise in the design of custom power supplies, Stadium Electronics (Hartlepool, UK) has received a UK production order relating to a joint venture between British Telecom and Marconi for converting up to 30,000 pay phones to “e-payphone” stations….iSECUREtrac (Omaha, NE) has added Technical Support (Omaha, NE) as a contract manufacturer for a series of GPS-based offender tracking units used in the criminal justice system….Exabyte (Boulder, CO), a supplier of tape backup systems, has outsourced some manufacturing to Hitachi. Exabyte also uses Solectron as a manufacturing partner.
China facilities…Bear Stearns is reporting from its Annual Technology Conference that Benchmark Electronics (Angleton, TX) will start operation of 100,000-ft2 leased facility in China by the end of Q3….MSL has decided to close its facility in Shenzhen and replace it with a more suitable plant. The company said the existing multistory facility with its small footprint was inadequate for the kind of business that MSL foresees doing in China.
New Provider Arises from Demise of CTI
Yet another new EMS company has emerged from the recent failure of a US-based provider (May, p. 6-7; March, p. 5). Technology Design and Manufacturing Services LLC (TDMS), a new company, has purchased the Springfield, MA assets of CTI Technology, an EMS provider that filed for bankruptcy protection in April under Chapter 11 of US bankruptcy law.
As a result, TDMS has taken over CTI’s 17,000-ft2 facility in Springfield, which employs about 30 people. The operation will continue to offer prototyping through low to medium volume production. “We’re intending to go after the industrial marketplace, which this operation has been primarily focused on, and we’re looking at the medical marketplace as well as the military marketplace,” said Victor Servello, president of TDMS.
TDMS has increased SMT capacity by adding two lines and has expanded through-hole and test capabilities as well.
Ajoy Bose, an investment banker, and Virginia-based Development Capital Ventures own about 95% of the new company, with the balance owned by management.
Besides the Springfield facility, CTI also had EMS operations in Pompano Beach, FL, and Rosarito, Mexico. Those operations remain closed.
CTI went under because it ran into a working capital shortage and could not fund material to support its backlog. “The customers disappeared because we could not support them. That kind of put the company in a spiral into bankruptcy,” said Servello, who was executive VP of CTI when it filed for Chapter 11.
Viasystems Aims To Recapitalize
Viasystems Group (St. Louis, MO) is pursuing a recapitalization plan that will improve cash flow and strengthen its balance sheet. The provider and a group of bondholders have come to an understanding regarding the exchange of at least $500 million of its 9.75% senior subordinated notes into equity. The group consists of Hicks, Muse, Tate & Furst and a committee of bondholders together representing about 68% ownership of the notes. Terms of the exchange and other aspects of the proposed recapitalization have not been completed, and negotiations are continuing.
The provider has also obtained a 90-day extension to its credit agreement. According to Viasystems, the extension will be sufficient to complete the recapitalization.
This recapitalization will save Viasystems about $50 million in annual interest payments.
People on the move…John Nussbaum, a cofounder of Plexus (Neenah, WI), will retire as its president and CEO as of July 1. Dean Foate, currently COO of Plexus, will succeed Nussbaum, who will continue to serve as chairman of the board. Thomas Sabol, executive VP and CFO, will replace Foate as COO. Sabol, who will retain the title of executive VP, will keep his CFO duties until a successor is named….IEC Electronics’ CEO, Thomas Lovelock, and its CFO, Richard Weiss, have left the company. According to IEC (Newark, NY), both decided not to continue in management of the downsized company. W. Barry Gilbert, chairman of the board, has stepped in as acting CEO, and Bill Anderson, VP and GM, has been appointed COO. After a layoff in March, the company reduced its Newark, NY work force by 35% last month. The company said the latest reduction is temporary….Suntron (Phoenix, AZ) has named Michael Eblin COO and Michael Gibbons executive VP of new business development. Eblin had served as president of the former EFTC, and Gibbons had been president of the former K*TEC Electronics. Suntron has promoted Scott Shamlin to senior VP and GM overseeing operations in the Northwest and Southwest US and Northern Mexico….MSL has hired Sean Lannan as VP and treasurer to replace Richard Buckingham who is retiring from his full-time position. Lannan’s background includes seven years at Lucent.