MMI June 2004
Vol. 14, No. 6: June 2004
Table of Contents — Headlines
India Spurs EMS Activity
Attention focuses on India’s market potential and engineering resources
India is attracting more and more interest from multinational EMS companies. But this attention is not coming for the usual reason. At present, these EMS companies do not see India as a low-cost geography for supplying product to customers globally. These providers are not approaching India as a second source to China. No, India has emerged as a new EMS frontier for other reasons.
Actually, for two reasons. First, India offers an abundance of engineering talent that potentially can be harnessed by EMS providers. For example, India, as the world knows, has become a major provider of software engineering, a capability that at least one top-tier provider wants. Second, growing segments of the Indian electronics market are creating more interest in having products manufactured in India for the domestic market. To accommodate customers who want products built for the Indian market, at least one global provider is expanding its Indian operation, while another is planning to open a facility in the country.
Not only is India well stocked with engineers the country graduates some 250,000 engineers a year engineering services can be exported with ease. It’s just a matter of an electronic connection. Manufacturing product for export, on the other hand, means relying on India’s infrastructure and supply base, which do not measure up to other low-cost geographies such as China.
Flextronics adds software capabilities
Flextronics made a big splash in India when it recently announced an agreement to acquire a 55% controlling interest in Hughes Software Systems (HSS), an Indian provider of software products and services to telecom infrastructure companies. The deal will expand Flextronics’ offerings in the telecom infrastructure space, where the provider has sought business to lessen its dependence on consumer-type products. According to Flextronics, it will be the first EMS provider to offer embedded and application software development for telecom infrastructure customers. The company is positioning itself as now offering a complete outsourcing solution to telecom OEMs.
“This partnership should offer significant opportunities to cross-sell our respective products and services to a very complementary telecom customer base,” stated Michael Marks, CEO of Flextronics. “We are committed to expanding design services into every product area where we have a manufacturing presence.”
HSS’s products and services span domains such as optical, wireless, satellite and broadband networks; switching systems; and convergent networks. For the fiscal year ended March 31, HSS reported sales of Rs3,604 million (about $80 million) and net income of Rs769 million (about $17 million). Revenue grew about 63% in fiscal 2004 and is expected to increase by about 25% in fiscal 2005.
Flextronics plans to buy the 55% stake in HSS from Hughes Network Systems, a wholly owned subsidiary of The DIRECTV Group. The EMS company will pay Rs547 per share, which amounts to a total cash payment of about $226.5 million to Hughes Network Systems. HSS’s shares trade on two exchanges in India. Under Indian securities regulations, Flextronics is required to make an open offer this month to purchase an additional 20% of the HSS shares outstanding. At an assumed offer price of Rs547.93, the extra shares would cost Flextronics $82.5 million if all of the additional shares were offered to the company.
HSS’s customers number about 250, of which 111 were active in the March quarter. Hughes Network Systems accounted for 18% of HSS’s revenue in the quarter. Lucent, Alcatel, Nokia and NEC are HSS customers. Sales are skewed toward Europe and North America, which represented 51% and 36% respectively of HSS’s revenue in the March quarter.
In HSS, Flextronics will also gain a BPO (business process outsourcing) unit, which provides a 24×7 contact center and transaction/back-office processing services. The company has made no public mention of this capability, which presumably fits in with the company’s strategy to take over management of OEM operations. HSS entered the BPO arena in 2002 and continues to provide Hughes Network Systems with BPO services while seeking non-Hughes business for the BPO unit. BPO accounted for 4% of HSS’s revenue in the March quarter.
Employing about 2400 people, HSS operates development centers in Gurgaon (New Delhi) and Bangalore, India, and Nuremberg, Germany. The company was incorporated in India in December 1991.
The DIRECTV Group has been selling off non-core assets including HSS since Rupert Murdoch-led News Corp. acquired 34% of the company, formerly known as Hughes Electronics.
Solectron looks for engineering in India
Flextronics is not the only tier-one provider that sees what India can offer on the engineering side. But Solectron is not taking the same approach to engineering services from India.
Unlike Flextronics, software capability is not a priority for Solectron. “Right now, software is not a particularly heavy focus for our customers in terms of where they’d like to see support from us. Therefore, that is not a particularly large area of investment focus for us,” said Kevin Sachs, VP of strategic marketing at Solectron.
Solectron already possesses some design and engineering capability in India through the company’s 51% stake in Solectron Centum, located in Bangalore. Solectron Centum developed this capability, which includes software engineering, in the company’s original role as a supplier of frequency control products and hybrid microcircuits. Solectron plans to integrate this capability more tightly with its broader organization. “In addition, I think we fully expect that we will leverage some of the broader capabilities that exist within India,” said Sachs.
RF engineering is high on Solectron’s wish list for India. “I think the RF engineering is probably the biggest near-term focus,” said Sachs, because of India’s expertise in that area. He added, “In terms of electrical [and] mechanical design engineering, for the most part we think that we have pretty good capabilities that we’re able to access at competitive cost levels in other geographies, in particular China or other parts of Asia.”
Celestica is also mindful of the capabilities that exist within India. “In terms of supporting some of the emerging services that are important for our industry to offer things certainly in the design area and other service-type offerings there are some clear advantages that India does have as part of a global offering from a tier-one sort of EMS player,” said Marv MaGee, president of Celestica.
Elcoteq makes its move
Besides offering engineering capabilities, India has created a growing local demand for electronics, particularly in the wireless telecom segment. “Right now in the [wireless] telecom space, the market in India, we believe, is growing faster than anywhere at the moment,” said Henry Gilchrist, director of business development and marketing at Elcoteq Asia Ltd, a unit of Elcoteq Network. According to Gilchrist, it is estimated that between 30 and 35 million handsets will be sold in India this year. Naturally, multinational cell-phone OEMs are present supplying product to the Indian market.
Yet “there is no handset manufacturing in India, according to our government sources…,” said Gilchrist “So for us, obviously that created an opportunity window, and we decided to be the first movers in there to get in and start offering the service.”
Elcoteq plans to rent between 2500 and 5000 m2 of space in Bangalore, which has become a center for new technology and IT in India. The provider expects to close on the new space in July and have it operational within six to nine months. When fully loaded, the facility will employ a work force estimated at about 1000 people.
The new plant will also build equipment for the communications infrastructure market in India. Gilchrist cited a telecom report that put the total value of communications equipment and software in 2003 at about $6 billion for India.
India’s expanding economy has provided one source of growth for the wireless telecom market there. Also helping to fuel that growth is a universal licensing scheme implemented last year for wireless operators, Gilchrist reported.
In lining up business for the new operation, Elcoteq is in discussions with Chinese and Indian companies as well as global OEMs. The Chinese companies, which Elcoteq already supports in China, are looking to expand into emerging markets. Although there are no indigenous handset brands in India and little in the way of domestic producers of communications equipment, Elcoteq has been meeting with Indian companies that are eyeing the comm sector.
Although the Indian government is sometimes criticized for being inconsistent from election to election or too bureaucratic, Elcoteq discovered a government program that will aid its efforts in India. This program, which goes under the acronym EHTP (Electronic Hardware Technology Park), provides benefits to companies that are replacing certain imports with local manufacturing. As a local producer of handsets and other telecom products, Elcoteq will qualify for EHTP benefits, which include export credits, no duties on imported components or capital equipment, business tax incentives, and an expedited import-export process. According to Gilchrist, this program is potentially available to any EMS provider that manufactures qualifying products in India.
India’s march toward WTO entry may appear to undermine Elcoteq’s position as a local manufacturer because the import duties on handsets are expected to go to zero in March 2005. However, “we have a fairly strong indication that there will be some level of excise placed on imported product through the sales process in India,” said Gilchrist. He pointed out that the same thing happened to imported IT products, which incur excise taxes of about 17%.
In India, Elcoteq will be offering an end-to-end solution to its target market of handset OEMs and communications network equipment companies. This solution includes after-sales support, which “is a fairly critical point in India because there’s actually legislation whereby the OEMs are responsible for the after-sales care of their product for seven years,” said Gilchrist.
Other providers wait for the right opportunity
While Elcoteq has committed to open a plant in India, some other providers are interested in it, but not ready yet to make a move. For example, Celestica is constantly looking at India. “For us, it’s another interesting opportunity. As always in our industry, what interests our customers fascinates us. So as our customer desires increase for either domestic opportunities in India or capabilities that could be leveraged to help our customers, that’s what we would be supporting with great haste,” said Celestica’s MaGee. He was unable to provide a timetable as to when the company would take action regarding India.
Other providers are quietly seeking ways to take advantage of what India offers. Mark Zetter, president of the consulting firm Venture Outsource Group (San Jose, CA), knows of two or three North American EMS companies that are looking to form a joint venture or alliance with an Indian partner that could provide engineering, EMS or both.
EMS operations in India
Of the tier-one providers, three have EMS operations in India. Flextronics maintains a Bangalore facility, listed with 18,000 ft2 and 297 employees. Products manufactured by this former Motorola plant include an engine management card, TV tuners, a set-top box, energy meters, a cell-phone product of some type, and networking cards. According to sources both public and private, Flextronics is expanding the operation. The company has not confirmed this report.
In Pimpri, Jabil Circuit operates a 51,000-ft2 plant, which the provider took over from Philips in late 2002. With about 200 employees, the Pimpri plant manufactures TV analog monitor cards and certain audio products for Philips. All production today is for the Indian market. The plant recently won board production business from an existing consumer customer and is launching television CRT board assemblies for another customer in the consumer space. Yet another Jabil customer with consumer business will be transferring product from China into India over the next year.
India continues to occupy a significant position in Jabil’s game plan for the Asian Pacific region. “India remains strategic to the APAC strategy, and our intent is to pursue domestic OEMs and MNCs looking for design, PCBA, box build, enclosure and repair support throughout this country. We provide services that most of our competition do not inside India and see this as a distinct advantage for our customers looking to broaden their suppliers’ offerings from what has been traditionally available in that market,” Jabil stated to MMI.
Solectron Centum has been providing EMS for about 18 months from a 25,000-ft2 dedicated space in the company’s Bangalore facility of about 50,000 ft2. The EMS operation focuses primarily on the domestic market. Some 220 people work in the facility; of those, about 30 are assigned to the EMS operation. Other employees are shared between the EMS side and Solectron Centum’s business in hybrids and frequency control products. Solectron gained its majority ownership of Solectron Centum when Solectron acquired C-MAC Industries in 2001.
Solectron is planning to expand in India, and those plans include the EMS operation in Bangalore. The company is already investing in upgrading the IT systems in Bangalore to make them more suitable for an EMS environment. In addition, Solectron is committed to increasing the equipment capacity there, but has yet to determine how much is needed.
The EMS operation in Bangalore offers one SMT line. “The question is how quickly do we go to three or more lines…without expanding the footprint,” said Solectron’s Sachs.
But Solectron also has other things in mind for India. “We are also looking for other opportunities for growing our presence even more aggressively, whether that be specifically at the Centum site in Bangalore or through other mechanisms either in Bangalore or in other parts of India,” he said. This additional expansion would allow Solectron to tap India’s design and engineering capabilities, as mentioned earlier.
India-based EMS providers are not exactly household names in the EMS industry. Nevertheless, some of them ought not to be taken lightly. Take Celetronix. Formerly known as Celetron, Celetronix operates facilities in India and in other countries such as the US, Sri Lanka, and Malaysia. The company employs more than 8000 people across businesses in power conversion and memory as well as EMS. Last year, Flextronics licensed power supply technology from Celetronix.
Two more examples come to mind. Originally formed in 1954 to serve the Indian Defense services, Bharat Electronics over the years has diversified into civilian projects and has provided products and network solutions on a turnkey basis to customers in India and abroad. In one non-defense program, Bharat is manufacturing a handheld computer for the developing world in partnership with Bangalore-based PicoPeta Simputers. Note that Bharat can offer vertical integration in areas that include multilayer PCB design and fabrication.
Then there’s TVS Electronics, which bills itself as the largest manufacturer of computer peripherals in India. In addition to its product business, TVS has an EMS group with 70,000 ft2 of assembly area and 350 people across two plants in India. TVS Electronics is part of an Indian conglomerate called TVS Group.
“There are some great companies to partner with for EMS and ODM work, and we’ve worked with half a dozen of them. They are all in our Circle of Providers Program,” said Zetter of Venture Outsource Group. The program provides OEMs with information about potential EMS partners, while helping EMS and ODM providers enhance their marketing activity.
Can India serve as a low-cost producer for EMS customers?
The case builds for serving the Indian EMS market as more cell phones are bought there, more investments go into comm infrastructure, more emphasis is placed on rural IT, and more demand is created for consumer products. It’s no wonder then that providers such as Elcoteq, Jabil and Solectron are drawn to that domestic market.
What’s more, India is emerging as a source of engineering services for the global EMS industry. The Flextronics-HSS deal shows this trend in action. The question is whether India can also serve as a low-cost EMS source for export to global markets.
Development of India’s component supply base will have much to do with India’s ability to provide a global EMS offering. “If and when the component supply base there becomes more robust and I think many believe it will then all of sudden India potentially becomes a very high-viability location for export to other countries. That’s because given the overall population, it’s reasonable to think that their labor costs will continue to be relatively comparable with China particularly if you pick the right parts of India in which to manufacture,” said Sachs. But Solectron doesn’t see supply chain costs in India reaching the necessary levels “certainly within the next 24 months and more likely longer than that even,” he reported.
Sachs believes it’s possible that India will be competitive with China for EMS within four to five years. That is, if the Indian economy continues to grow rapidly and the right steps are taken by the Indian government.
Zetter has met with the Indian government to propose some cohesive policy directives for developing a global service offering for the Indian EMS industry. “The Indian EMS industry needs its own India-based trade association with regional and international exposure at a functioning level of a NASSCOM, able to bring the industry forward as a whole,” said Zetter. (NASSCOM is the trade association that has promoted India’s software industry.) Other highlights of those discussions included the need for government backing, for support from the larger EMS players in India, and for involvement with university and technical research centers.
Improvements in the infrastructure for power and logistics would also help make the case for India as a center for EMS.
Tax policy is another area to watch, and the prospective adoption of a 12.5% value added tax (VAT) in 2005 will result in more foreign direct investment in India, according to Jabil. The provider advocates a flat VAT and the elimination of special tax zones, which make certain areas non-competitive. Revenue from the VAT will be used to shore up government finances and fight poverty.
The Indian EMS industry may not be ready to take on China any time soon. But India’s domestic market and engineering resources cannot be overlooked.
Solectron Returns To Profitability
Will sell Force Computers to Motorola
Solectron (Milpitas, CA) returned to pro forma profitability one quarter earlier than planned. For the quarter ended May 31, the company reported pro forma net income from continuing operations of $12.5 million. Gross margin grew by 70 basis points from the previous quarter to 5.2%. The company attributed this increase to its gross margin improvement initiatives including, but not limited to, lean manufacturing (April, p. 1). Sales for the May quarter amounted to $3.04 billion, up 5% from the prior quarter and up 29% from the year-earlier quarter.
Proforma net income excluded $6 million in restructuring and impairment charges and $72 million in expenses related to the early settlement of Solectron’s adjustable conversion-rate equity security units (ACES). For the May quarter, Solectron reported a GAAP net loss from continuing operations of $65.4 million. Including income from discontinued operations, the company wound up with GAAP net income of $21.3 million.
Meanwhile, Motorola has signed a definitive agreement to acquire Solectron’s embedded computing business operating as Force Computers. The parties expect to close the transaction in Q3. Terms were not disclosed.
This deal is part of Solectron’s previously announced plan to sell seven noncore activities, of which all but one were identified (Dec. 2003, p. 5). Force Computers is the unnamed company.
Force is a designer and supplier of open, standards-based and custom embedded computing solutions for OEMs in a variety of applications. Once the sale is final, Motorola will integrate Force with the Motorola Computer Group, also a provider in the embedded computing space.
Employing about 500 people, Force is headquartered in Fremont, CA, with major operations in Munich, Germany; Bangalore, India; and Irvine, Scotland. Solectron acquired Force in 1996 through a stock deal worth about $205 million.
In addition, Solectron has completed the sale of its Kavlico sensor products business to Schneider Electric (Rueil-Malmaison, France), an international manufacturer of electrical distribution, industrial control and automation equipment (March, p. 5-6). The Kavlico unit went for about $195 million in cash. This divestiture is also part of Solectron’s plan to sell non-core businesses.
Provider Expands into Germany
Connect Systems International, the contract manufacturing subsidiary of IPTE (Genk, Belgium), has extended operations into Germany with the acquisition of Infotron GmbH (Stuttgart, Germany). Terms were not disclosed.
The deal is in line with Connect Systems’ strategy to become a European player in EMS. Services include production of cables and cable trees, PCB assembly and testing, subassembly, and final product assembly.
IPTE’s Contract Manufacturing division resulted from IPTE’s acquisition of Connect Systems in 1999. In 2003, the Connect Systems group achieved sales of 52.3 million euros with 633 employees. Connect Systems operates three facilities in Belgium and the Netherlands and has expanded production into Slovakia and Romania.
With 95 employees, Infotron brought in sales of 10 million euros in 2003. For over 25 years, the company has been delivering automation, mechanical and medical systems. The company will operate as Connectronics GmbH.
Equity stake taken…CirTran (Salt Lake City, UT), an OTC-listed EMS provider, has acquired an interest under 4.9% in privately held Broadata Communications (Torrance, CA), a maker of digital fiberoptic communications equipment. In connection with this investment, CirTran has signed an exclusive manufacturing agreement with Broadata, for whom CirTran will handle complete box-build manufacturing. CirTran has received a $500,000 order from Broadata under the agreement. Prior to the agreement, CirTran was building various PCB assemblies for this project.
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New programs…Nortel Networks has chosen Solectron to produce new multiservice edge products. Mike Cannon, Solectron’s president and CEO, described the Nortel program as “a major win.” The award is subject to the execution of a binding agreement. Solectron has collaborated with Nortel from the earliest design phases of these products through NPI to the current ramp up to volume manufacturing. The provider expects that the initial manufacturing phase will begin in the second half of the year….Global Display Solutions, which specializes in the design and manufacture of industrial displays, has selected Flextronics (Singapore) to assemble GDS’s ATM monitors in Brazil for the country’s banking market. GDS chose Flextronics in response to both increased demand for ATM monitors from Brazil’s banking market and high duties on end products imported into Brazil….PEMSTAR (Rochester Hills, MI) will build audio products in volume for American Technology Corp. (San Diego, CA). ATC will continue prototyping and R&D in San Diego and in-house production of one audio product line in San Diego and Carson City, NV, pending future outsourcing….EFJohnson, a producer of land mobile radio equipment, has entered into a manufacturing partnership with MTI (Dallas, TX), a low- to medium-volume EMS provider. EFJohnson is a subsidiary of EFJ (Lincoln, NE, and Washington, DC)…. Under a $1.5-million contract, LaBarge (St. Louis, MO) will continue to provide turnkey manufacturing services for two explosives detection systems from L-3 Communications Security and Detection Systems. LaBarge manufactures and integrates box-level assemblies into higher-level electronic equipment for these X-ray inspection systems. Also, LaBarge has landed contracts in excess of $1.0 million from Northrup Grumman’s Defense Systems Division, which has tasked LaBarge to build attitude reference units for an infrared countermeasure system. This system is used to protect a range of aircraft from infrared guided missiles. Furthermore, Boeing has awarded LaBarge a $2.1-million contract to continue to supply wire harness assemblies for US Air Force T-38C training jets. And Raytheon has granted LaBarge a $1.2-million contract to produce cable assemblies for an M60 tank upgrade and a $1.3-million contract to supply cable assemblies for a shipboard missile launcher….Under a $2.0-million contract from Northrup Grumman, Aerospace Systems, a division of Nortech Systems (Wayzata, MN), is manufacturing cable assemblies for new communication systems in up-armored Humvees, needed by the US Army in Iraq.
Alliances for product development…Sanmina-SCI (San Jose, CA) and Kailight Photonics (Dallas, TX) have entered into an agreement to jointly design, industrialize, manufacture and market Kailight’s line of Tunable All-Optical Signal Regeneration modules. In support of this joint effort, the Israel-US Binational Industrial Research and Development Foundation has approved a $1.0-million investment. Also, Sanmina-SCI has formed an alliance with Teradiant Networks (San Jose, CA), a developer of networking semiconductors. Through this alliance, the two companies aim to accelerate the development of a family of platforms based on the ATCA (Advanced Telecom Computing Architecture) standard, which provides a common set of physical and electrical interfaces for telecom and networking equipment. The platforms allow network equipment companies to build systems that are scalable from 20 Gbps to 120 Gbps. Sanmina-SCI intends to become a leading ODM supplier of ATCA-compliant products. Rollout of the scalable platforms is scheduled for late 2004.
Adding capacity…Elcoteq Network (Espoo, Finland) has added three SMT lines in Monterrey, Mexico, and will be expanding its work force there by 200 employees. The added capacity stems from increased orders to manufacture mobile phones and similar wireless communications products. This new equipment increases the number of lines to ten and boosts capacity by 43% in the Monterrey plant, which is operated by Elcoteq Americas (Irving, TX). The plant houses a production area of 18,300 m2 and employs about 1200 people….Micro Dynamics (Eden Prairie, MN) has added its third manufacturing facility, one of two plants located in Montevideo, MN. The new facility will give the provider 50% more production space in Montevideo and a total manufacturing capacity of 110,000 ft2 for the entire company. This expansion reflects increased customer demand and the latest customer wins. Production in the new plant just started with a complete manufacturing cell from PCBA to final assembly. Privately-held Micro Dynamics expects to grow by 30% or more this year and to exit the year with about $52 million in sales. Over the last 12 years, the company’s sales have risen at a CAGR of about 20%.
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Finmek Debts Frozen
Last month, Finmek (Padova, Italy), an MMI Top 50 EMS provider, was accepted for administration under Italy’s Marzano law based on the company’s poor financial condition. All of Finmek’s debts have been frozen by law. As the law stipulates, an extraordinary commissioner has taken over management of the company.
Ratified by the Italian parliament this year, the Marzano law was the Italy’s response to the Parmalat financial crisis. The law applies to companies with no less than 1000 employees and total indebtedness of at least one billion euros.
Other financial news…Solectron has repurchased about $950 million of it senior convertible notes due in November 2020 (April, p. 7). This action combined with the early settlement of 94% of the company’s 7.25% ACES allowed Solectron to reduce its debt by $1.96 billion in the May quarter. With the repurchase of these notes, Solectron will reduce interest expense by about $10 million a quarter. The company’s remaining debt will have an average maturity of five years….Celestica (Toronto, Canada) has completed the sale of 7.875% senior subordinated notes due 2011 with a principal value of $500 million. The provider expects to use the net proceeds for repurchase of liquid yield option notes (LYONs) and general purposes, including future acquisitions. Standard & Poor’s Rating Services assigned a B+ rating to Celestica’s original proposal to sell $350 million of 2011 senior subordinated notes. S&P’s outlook is negative. Its ratings on Celestica reflect continued difficult end-market conditions and the provider’s subpar operating performance. These factors are partially offset by the company’s tier-1 position and longer term trends favoring outsourcing, according to S&P. Also, Celestica’s $250-million revolving credit facility has been increased to $600 million and extended to June 2007. The company chose to end its $500-million revolving facility, which would have matured in June 2005. No amounts are currently outstanding under either facility….Shareholders of Hon Hai Precision Industry (Tu-Cheng, Taiwan), also known as Foxconn, have approved a plan to increase Hon Hai’s investment in InnoLux Display to a maximum of one-third of InnoLux’s equity. Taiwan-based InnoLux is a producer of TFT-LCD panels. Also, the shareholders authorized Hon Hai to pursue listing of its foreign subsidiaries in at least one overseas stock exchange. Several news sources have identified Foxconn International Holdings, which reportedly includes Hon Hai’s international cell-phone operations, as the unit likely to be listed. These sources also report that Hong Kong is the preferred location for an IPO….SMTC (Toronto, Canada) has completed a series of previously announced transactions to recapitalize the company (Jan., p. 8). As a result, the company has reduced its indebtedness by about $37.5 to $40 million. The transactions involved a private placement of Cdn$40 million in special warrants, a $40-million revolving credit facility, repayment of $40 million of debt, exchange of $10 million of debt for equity, and restructuring of $27.5 million of debt….Ernst & Young has notified PEMSTAR that the accounting firm will resign as the company’s independent auditor. According to PEMSTAR, the parties did not disagree on any accounting matters, financial disclosures or audit procedures….Three-Five Systems (Tempe, AZ) has filed a shelf registration statement for the sale, from time to time, of up to 6 million shares of TFS’s common stock….Nam Tai Electronics (Hong Kong) achieved a monthly sales record of $50.8 million in May. The new high was 18% above the old record of $43.0 million set in April 2003.
Jabil Settles with Customer
Last month, Jabil Circuit (St. Petersburg, FL) reached a settlement with Digital Lightwave (Clearwater, FL), a customer that had defaulted on note obligations to Jabil. Under the settlement, Digital issued to Jabil two renewal promissory notes totaling about $5.2 million and maturing on Dec. 31, 2005. In addition, Jabil has agreed to dismiss two lawsuits it filed in 2003 and to continue to provide manufacturing services to Digital.
Publicly held Digital Lightwave is a provider of optical networking technology and test instruments. In the March quarter, the company posted a net loss of $2.5 million on sales of $4.4 million.
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Preco Attains New Certification
Preco Electronics’ Morton, IL, division, a ruggedized EMS provider for middle-market OEMs, has received ITM Process Certification for Class 2, Electronics Assembly. Preco’s Morton operation is the first EMS provider in North America to earn the new certification from ITM Consulting (Durham, NH).
ITM conducted a series of operations and process audits to certify that the materials, equipment, processes and personnel within Preco’s Morton facility have met standards set forth by ITM and represent the best practices for the assembly of Class 2 electronic products. Moreover, ITM determined that the facility’s PCBA operation can produce high-quality PCB assemblies in accordance with IPC standard A-610, Class 2, Acceptability of Printed Circuit Boards.
In addition, the Preco operation has launched an effort to incorporate six-sigma principles throughout the business. The provider plans to integrate six-sigma methods into its existing lean initiatives, which have eliminated waste and improved performance at the Morton facility for the past four years. Of course, six sigma provides tools to utilize process data in all areas of the business to reduce variation in execution and improve quality.
Medical certifications…Seven of Sanmina-SCI’s medical device manufacturing facilities have been certified to ISO 13485 or 13488 as well as to CMDCAS (Canadian Medical Devices Conformity Assessment System). The ISO standards apply specifically to quality systems for medical devices. Sanmina-SCI expects to gain two more medical certifications by the end of Q3….The Moorpark, CA, plant of SMTEK International, which is based in Moorpark, has also achieved ISO 13485 certification. The company anticipates that its other facilities, including its Asian plant, will complete the same certification by year end….Yet another EMS provider, Reptron Electronics (Tampa, FL), has received ISO 13485 certification for its Tampa facility. Some 40% of Reptron’s EMS business comes from the medical sector. In addition, Reptron has achieved FDA registration as an EMS provider of medical devices.
Supporting EMS companies… Aerotek (Hanover, MD) will provide and manage an estimated 4000 contract employees at 17 Solectron facilities in the US and Canada. These employees will perform manufacturing, light technical and administrative duties. The two companies signed an exclusive four-year staffing contract….Elcoteq Network has contracted Tradeport Hong Kong to provide inbound and outbound logistics for Elcoteq’s South China facilities. Components from overseas suppliers will move through Tradeport for final assembly in Dongguan and Shenzhen, and finished products will be packaged and dispatched from Tradeport’s logistics center at Hong Kong International Airport.
Anniversary…EMS provider MEC (Milwaukee, WI) is celebrating its 50th anniversary this year. The company originally produced hi-pot testers for finding electrical defects. In 1985, P. Michael Stoehr, president of MEC, purchased the operation, then known as Milwaukee Electronics Corporation. Under Stoehr’s leadership, the company moved from designing electrical circuitry to electronic engineering services. The company also built up its EMS capability, which was extended to Portland, Oregon, in 1999 and Tecate, Mexico, last year.
Plant closure…Flextronics is closing its operation at the Pease International Tradeport in New Hampshire. Local media reported that about 300 jobs will disappear.
People on the move… R. Thomas Tropea has retired from his position as Celestica’s vice chair for global customer units and worldwide marketing and business development. Marv MaGee has taken over business development responsibilities and remains Celestica’s president. MaGee no longer carries the title of COO, and CEO Stephen Delaney has assumed oversight of the company’s operations for now. Ultimately, Celestica will dedicate a person to serve as head of operations….Chris Lewis, CFO at Jabil Circuit, will give up his financial duties and assume the position of VP of business development. “It has been my long-term desire to contribute to Jabil beyond the CFO role. This position will provide me an opportunity to round out my experience with significant direct customer and line management responsibility,” stated Lewis. Treasurer Forbes Alexander will succeed Lewis as CFO. In addition, Jabil promoted Bill Muir to senior VP, regional president for Asia, and Bill Peters to senior VP, regional president of the Americas. John Lovato, senior VP, will relocate to Europe and join the staff of Europe COO Michel Charriau. Jabil has promoted Joe McGee to take Lovato’s job as senior VP, global business development….Jeffrey Schlarbaum has joined IEC Electronics (Newark, NY) as VP of sales and marketing. Most recently, he served as VP of sales, Eastern Region, for Plexus. His resume also includes stints at MCMS and Mack Technologies. Both Schlarbaum and Ann Wood, VP of operations, were elected as corporate officers of IEC. Also, the company has promoted Ronald Pratt, Ph.D., to the newly created position of chief technology officer. Finally, IEC has announced the early retirement of COO Bill Anderson, whose position will not be filled at this time. According to IEC, Anderson has chosen to step down to pursue other opportunities closer to his home in Pennsylvania.