MMI October 2004
Vol. 14, No. 10: October 2004
Table of Contents — Headlines
Flextronics Ups the Ante in Vertical Integration
Vertical integration has created a schism in the EMS industry between those who believe in it and those who don’t. If anything, this divide has become even more pronounced as exemplified by Flextronics, which is expanding into component businesses beyond PCBs and enclosures. The company has become a supplier of such things as flexible circuits through its Sheldahl acquisition, power supplies, camera modules, and displays, with the ability to support both internal needs and merchant (non-EMS) customers. As Flextronics has added component businesses, Celestica and Solectron have subtracted them. Celestica recently sold its power supplies business, and components businesses were among the non-core activities in Solectron’s divestment plan announced last year. Of course, vertical integration is not a new concept for the EMS business. But Flextronics and Foxconn (the trade name for Hon Hai Precision Industry), in particular, are applying the concept with such rigor that a clear separation is emerging between vertical and non-vertical companies in the industry.
But that’s not the whole story. It is not a coincidence that the three tier-one proponents of full vertical integration Flextronics, Foxconn and Sanmina-SCI all engage in ODM activity. When a vertically integrated provider designs a product, either as an ODM project or as a contract design job, that provider can specify its own components in the design. As a result, the provider gets to keep the margins on those components for itself. Flextronics, for one, is telling the world that by supplying its own components it can also take cost out of a product design.
For example, the company has examined the costs of the subsystems and components in a cell-phone design. For a number of cell-phone components, Flextronics is reducing the cost of those items by adding or developing capabilities to produce them.
Last year, the company decided to go into the business of supplying camera modules for cell phones. Today, Flextronics is projecting volumes of 48 million modules over the next 18 months, with more opportunities in the pipeline. What’s more, Flextronics just entered into an agreement to acquire Agilent’s camera module business. Terms were not disclosed, and the deal is expected to close by year end. Flextronics added lens capabilities by acquiring a former Polaroid group in Boston, MA.
Other cell-phone components supplied by Flextronics include antennas, power adapters, plastic enclosures and displays. To produce the latter, Flextronics buys glass from others, thus acting as a fabless display supplier. The company started in that business by assembling displays for Casio.
Flextronics is applying its component strategy to other product areas. In printers, for example, the company has decided to enter the scan bar business. Recently, Flextronics acquired Peripheral Imaging Corporation, a supplier of scan-bar chips.
“We are going to continue to invest in opportunities in the component space. But a key point of our strategy is to invest in areas where we can leverage capabilities that Flextronics already has,” said Nicholas Brathwaite, Flextronics’ chief technology officer, during the company’s Analyst and Investor Meeting held last month.
Flextronics has set limits on the types of component businesses it will consider. “We’re not getting into the semiconductor fab business. And we’re not getting into the glass fab business,” CEO Michael Marks told the meeting audience. He said, “We are only going into components that do not have high capex to sales ratios.”
The company intends to use its components business to add revenue and help raise overall operating margins. Today, that business is at about $2 billion in sales and about 6% or so in operating profit, Brathwaite reported. Flextronics’ long-term goal, he said, is to bring sales to about $3 to $3.5 billion running closer to 10% operating profit.
But vertical integration has its critics, and they will point out that vertical integration didn’t work for OEMs of the past. In the meeting, Marks freely admitted, “we reassembling on the EMS side what used to exist in the old-line OEMs.” So why won’t Flextronics also fail at vertical integration? He answered that the elements of Flextronics’ vertical integration are “not captive to us. They’ll never be captive to us.” Marks expects that benchmarking from the merchant market will keep the company from getting sloppy in these vertical elements.
EMS Growth Not Tied to End Markets, Says Jabil
The EMS industry is still fighting a perception, borne during the downturn years, that its growth is a function of end market demand. Jabil’s president and CEO, Tim Main, recently went out of his way to dispel this notion.
“One of the more perplexing misguided notions is that Jabil and the EMS industry growth is entirely dependent on end markets. For time horizons longer than 90 days, the most powerful influence on our growth rate is the secular trend to outsource electronics production and services,” said Main during the company’s earnings conference call last month.
He presented a chart to make his point. See slide 18 on Jabil’s Q4 FY 2004 earnings presentation archived in the investor section of its website. The chart shows that Jabil’s sector growth rates in fiscal 2004 dwarfed comparable OEM growth rates in six out of the eight categories that Jabil serves. “Clearly, our growth rate has substantially exceeded end market activity,” said Main. “Jabil’s three highest growth sectors instrumentation and medical, consumer and automotive are driven largely by vertical OEMs converting to an outsourced model. In essence, this is the growth story for Jabil and every other player in the business.”
Taking a longer view, Main compared Jabil’s growth over eight quarters with the growth of cost of goods sold for seven major OEMs acting as a proxy for end markets. He used a chart of indexed data (slide 19 in the earnings presentation). As the chart makes clear, “end market activity accounts for a very small portion of our growth. The balance is comprised of vertical OEMs converting to an outsourced model, service expansion with existing customers and market share gains,” said Main. Over the past 8 quarters, Jabil has grown revenue 75%.
Main also estimated market size and outsourcing penetration for sectors that are still heavy in vertical integration. He described consumer electronics as a $120- to $160-billion industry and put its outsourcing level at about 10 to 15%. Main reckoned that the electronics content of the automotive business is worth $40 to $60 billion with of less than 10% outsourcing penetration. Medical is about a $14-billion industry, according to Main, while industrial controls and instrumentation each amount to about $20 to $25 billion. He estimated that penetration of these three segments is roughly around 10%. In contrast, penetration of mature segments computing, networking and telecom is in the range of 50% or more, said Main. “So I think it’s consistent with Jabil seeing more growth in the segments that are primarily vertically integrated,” he added.
In Europe alone, these segments could produce outsourcing worth some $4.6 billion over the period 2003 to 2006, according to MHM (Ayr, Scotland), an information services firm. MHM estimates the European opportunity at $2.6 billion for the consumer segment; $990 million for automotive; $648 million for industrial, instrumentation and control; and $404 million for the medical sector.
Nokia’s Box Build Outsourcing to Grow
MHM’s information service is also projecting that Nokia’s box build outsourcing will increase from $2.3 billion in 2003 to around $3 billion this year. This additional work consists of a $400-million increase in handset outsourcing and $200 to $300 million more outsourcing on the infrastructure side. For more information, email firstname.lastname@example.org.
Flextronics Reveals More Acquisitions
Flextronics (Singapore) recently disclosed a number of acquisitions, some of which involve operations in India. At the company’s Analyst and Investor Meeting held Sept. 29, executives revealed the scope of Flextronics’ investments in India as well as other transactions on the engineering side.
The provider now concedes that it has made deals for four engineering companies in India as well as a firm in the Ukraine. Flextronics plans to use all five companies in product design for the communication space. Today, such product design is 70% software (Sept., p. 3), and in all but one of these companies software engineering is the main attraction.
Previously, the company acknowledged two software-related moves in India obtaining a controlling interest in Hughes Software Systems (June, p. 1-2) and acquiring FutureSoft (Sept., p. 3). Hughes Software primarily works in the wireless and convergent technologies, while FutureSoft is a datacom play. In the analyst meeting, Flextronics executives divulged two more deals related to India.
Flextronics acquired Deccanet Designs of Bangalore, India, a telecom hardware and software design house with about 270 engineers. Deccanet will give Flextronics a hardware capability that the company needs for designing communication infrastructure products. Customers of Deccanet include Motorola, Broadcom, Intel, Infineon, Huawei, OKI Telecom, Lycium, Hitron, Valiant and ICS.
In the second deal made public, Flextronics picked up Avnisoft, a company headquarted in Sunnyvale, CA, with a software development center in Bangalore, India. Employing about 50 software engineers, Avnisoft has expertise in test and validation, network management, network processing, and switching. This software developer competes in the datacom and networking side of the infrastructure space.
Flextronics also disclosed that it acquired a Ukrainian company, Alex Usatch Consulting & Technologies, which will serve as Flextronics’ low-cost center for software development. With locations in Vinnitsa and Kiev, this operation employs about 200 software engineers.
Citing competitive reasons, Michael Marks, Flextronics’ CEO, told analysts at the meeting that the company did not want to discuss its strategy for India until it had completed its mission there. Flextronics believes it has snapped up the sizable software players in India and preempted the competition. “If our competitors Jabil or Solectron or Foxconn or anybody decide that they really want to do what we’re doing, it will take them five years or 10 years or never,” said Marks during the meeting.
In addition, he pointed out that some of the Taiwan ODMs are using Flextronics’ newly acquired companies in India to design the ODMs’ software. “We are in a position to compete, no problem, with the Taiwan ODMs,” said Marks.
Other investments on the design side were also revealed at the meeting. Flextronics acquired Peripheral Imaging Corporation (San Jose, CA), a supplier of image sensors used in scanners. PIC, a small company with 18 engineers, will aid Flextronics in its effort to enter the scan bar business (see also article on p. 1). Also on the silicon design side, Flextronics has made an investment in Inphi (Westlake Village, CA), which does silicon design for high-end mixed-signal work such as required for infrastructure equipment.
Another deal that came to light has to do with Flextronics’ camera module business. The company paid less than $10 million for a former Polaroid group (Boston, MA) with expertise in lenses (see also p. 1).
Flextronics has made 10 acquisitions in the last two quarters. It appears that the company has now disclosed most if not all of them. If one adds the eight transactions reported here plus the recent deals for Sheldahl and frog design, the total does come to 10.
Not only did Flextronics disclose a number of recent deals, it also made public an acquisition done about a year ago. In this earlier transaction, the company acquired GTRAN, a Korea-based developer of CDMA cell phones and data cards. As a result, Flextronics is doing CDMA development work in Korea. Flextronics added GTRAN at about the same time it acquired another handset developer, Microcell, in a deal that was announced then. Both acquisitions played pivotal roles in Flextronics’ entry into the handset ODM business.
Greatly aided by acquisitions, Flextronics now has over 7000 design engineers, reported Ash Bhardwaj, Flextronics president of design and ODM services, during the meeting. Flextronics Software Systems alone accounts for about 4000 of those. This new unit unites the company’s software developers from new acquisitions as well as from existing Flextronics operations (Sept., p. 3).
According to Marks, Flextronics believes that it can grow sales from its Indian investments by 20% or 30% a year and make a 20% profit after taxes.
Completes Hughes Software deal
This month, Flextronics completed the acquisition of 70% of the outstanding shares of Hughes Software Systems. The total cost of this transaction was $289 million. Flextronics paid $226.5 million to Hughes Network Systems for its stake of about 55% in HSS and $62.5 million to HSS shareholders who, as participants in an open offer, accounted for about 15% of the shares.
Flextronics is portraying the addition of HSS products and services as making it the first EMS company to offer convergent software solutions to fixed and mobile networks for both voice and data.
For the September quarter, HSS reported that sales increased 37% year over year to INR1166 million. Six-month sales were up by 39% from a year earlier. Net profit after tax for the quarter amounted to INR258 million, or 22% of sales. This profit grew 51% year over year.
Business process outsourcing (BPO) represented 4% of HSS sales for the September quarter. MMI had speculated that BPO would fit in with Flextronics’ strategy (June, p. 2). This assumption proved to be wrong. In the analyst meeting, Marks made it clear that Flextronics does not intend to go into business processing outsourcing.
Meanwhile, the Indian government approved Flextronics’ proposal to make a foreign direct investment of INR 1.85 billion (about $40.4 million) for the acquisition of FutureSoft.
Nortel facility transfers delayed
Flextronics has also provided new dates for the transfer of two Nortel facilities in Canada, which Nortel is divesting under a previously announced agreement between the two companies (July, p. 1-2). It was originally anticipated that Flextronics would take over the Montreal and Calgary facilities in November 2004 and February 2005 respectively. These dates have been revised to February 2005 and May 2005. Completion of the transaction is still expected to occur in May 2005. There is no significant change to the expected timing of any other operations to be transferred.
“The delay in the transfer of these two manufacturing operations is due to Nortel Networks’ continuing focus on the completion of the company’s restatement of its financial statements and the required regulatory filings,” stated Michael Marks. He reported that the delay “may reduce” Flextronics’ EPS by one to two cents in the December and March quarters. But since some of the cash payments to Nortel will also be delayed, Flextronics will have more time to accumulate cash from operations in order to fund such payments.
Also adding software capability…EAZIX, the ODM arm of Integrated Microelectronics, Inc. (Laguna, Philippines), is beefing up capabilities in embedded software development. The design unit cited opportunities in embedded Linux and said it is working on projects for the Japanese market.
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Jabil to Add Philips Operation
Jabil Circuit (St. Petersburg, FL) plans to acquire a Philips TV assembly operation within the Kwidzyn, Poland, plant that Jabil bought from Philips in 2002. The operation produces TVs with cathode ray tubes (CRTs). According to Beth Walters, Jabil’s VP of communications and investor relations, the deal gives Jabil an opportunity to deepen its relationship with Philips, Jabil’s largest customer.
Jabil will be assembling plastic, boards and metals, while Philips will consign CRTs to Jabil for assembly.
Closing is expected by the end of November. That means Jabil will miss the months of high seasonal demand for consumer products, said Walters.
She pointed out that this deal was not included in any prior guidance.
More transactions…Jurong Technologies (Singapore) has entered into an agreement to purchase 40% of the shares of Plexus Manufacturing (Far East) Pte Ltd, the holding company for PT Plexus Manufacturing, which operates EMS facilities used by Jurong in Batam, Indonesia. Since Jurong already own a 60% stake in the holding company, this transaction will give Jurong full control of the holding company, its Indonesian subsidiary and associated facilities. Full control will allow for easier management of the companies and facilities, said Jurong. The provider will also enjoy the full benefits of securing new customers for the Indonesian facilities. Jurong will pay S$9.44 million in stock for the remaining interest….Suga International Holdings (Hong Kong), a Hong Kong-listed EMS provider, has agreed to acquire Precise, a producer of molds and plastic components, for HK$8.5 million in cash and stock. Precise, already a supplier to Suga, will provide Suga with vertical integration. Suga operates two factory locations in Shenzhen, China.
Divestitures…Solectron (Milpitas, CA) has completed the sale of its Microtechnology business to Francisco Partners (see Aug., p. 4). Terms were not disclosed. With this sale, Solectron has completed its divestiture plans announced last year (Oct. ’03, p. 7; Dec. ‘03, p. 5)….Celestica (Toronto, Canada) has concluded the divestiture of its Power Systems business to C&D Technologies (Blue Bell, PA) in a cash transaction valued at $52.8 million (Sept., p. 3-4). Power Systems sales totaled $94 million for the 12 months ended June 30.
Disk Drive Outsourcing to Foxconn
Continues to invest in China
Hon Hai Precision Industry (Tu-Cheng, Taiwan), which uses Foxconn as a trade name, is known to be tight-lipped about its activities. So it was surprising to find that Foxconn actually announced an outsourcing deal. The company has signed a letter of intent with Behavior Tech Computer Corp. (Taipei, Taiwan), whereby Foxconn will manufacture optical disk drive-related products for BTC. Foxconn plans to utilize its vertical integration in fulfilling this contract.
Foxconn’s vertical integration includes the production of optical pick-up heads used in optical disk drives. Earlier this year, the company acquired an optical pick-up heads supplier from a Thomson subsidiary (April, p. 4).
BTC’s sales amounted to about $445 million for 2003.
Meanwhile, Foxconn continues to invest in its China operations. The company is planning to add $17.5 million in capital to a subsidiary in the northern city of Taiyuan. This subsidiary, Hon Fujin Precision Industrial (Taiyuan), manufactures and sells computer cases, components and related peripherals. In addition, Foxconn has earmarked a $12.84-million investment for Futaihon Precision Industrial (Shenzhen), a Shenzhen subsidiary engaged in the production of plugs and outlets, handset plastics and PCB assembly.
As of last month, Foxconn had invested $417.4 million in China.
If a recent report is correct, Foxconn, which operates a large campus in Shenzhen, also has plans for North China. According to an article in the Business Standard, an Indian publication, Foxconn has selected the city of Yantai in Shandong province for its base in North China. The article pointed out that a Shandong location makes it easier to reach Northeast Asia.
Two Hong Kong publications have reported that Foxconn International Holdings, a Foxconn subsidiary, has applied to the Hong Kong Stock Exchange for an initial public offering up to HK$1.2 billion (about $154 million). Foxconn International Holdings includes Foxconn’s international cell-phone operations. Earlier, Foxconn shareholders had authorized the company to pursue listing of its foreign subsidiaries in at least one overseas stock exchange (June, p. 7).
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More new programs…Digital Devices (Fort Lee, NJ), which owns Galaxis Sales (Luebeck, Germany) as a subsidiary, has outsourced manufacturing of Galaxis’ digital set-top boxes to Flextronics. Production will take place at Flextronics’ facility in Bangalore, India, for the Indian and European markets. Proposed manufacturing services would provide over 700,000 STBs to fulfill current back orders. Flextronics is expected to play an integral role in producing the next-generation products, targeted for release in Q2 2005.…Foxconn has received network core equipment orders from Nortel, according to eASPNet, an Internet data center service in Asia. Nortel and Foxconn are both investors in this service….Elcoteq Network (Espoo, Finland) has landed its first customer for its new operation in Manaus, Brazil (Sept., p. 4). The Brazilian operation will manufacture CDMA cell phones for Vitelcom Mobile Technology (VMT) on a turnkey, build-to-order basis, ready for distribution to end users. Manufacturing will begin late this month. Part of Europe’s Vitelcom Group, VMT is a manufacturer of GSM, GPRS and UMTS mobile phones. This contract represents Vitelcom’s first major outsourcing program. The handsets to be produced by Elcoteq will support a nationwide distribution plan for Brazilian customers….Under a long-term supply agreement, SMTC (Toronto, Canada) will provide Radio Systems Corp., or RSC (Knoxville, TN), with EMS including engineering, PCB and final product assembly, and logistics services. RSC, a supplier of pet management solutions, was looking for a low-cost North American footprint and a full suite of capabilities through final product distribution. This contract award came after RSC qualified SMTC’s Chihuahua, Mexico, facility, which SMTC has designated its primary assembly operation. Manufacturing activities for RSC are expected to begin in the current quarter with volumes ramping in 2005….Kodiak Networks (San Ramon, CA) and Arrow OEM Computing Solutions, a division of distributor Arrow Electronics, have entered into a manufacturing and distribution partnership. Under the agreement, Arrow OCS will provide first-article design, proof-of-concept activities, manufacturing and integration, extended testing, and inventory lifecycle management for Kodiak’s wireless voice services platform built upon an all-IP packet switch. Arrow OCS will ship Kodiak products directly from its integration center in Phoenix to Kodiak’s wireless network operator customers worldwide….AMRON Technologies (Hartsville, SC), has selected Global Electronic Manufacturing Services (Columbia, SC) as its strategic partner to supply manufacturing and quality assurance services for AMRON’s M5 advanced metering hardware components. AMRON delivers advanced metering technologies and services to utilities and their commercial and industrial customers….Tundra Semiconductor (Ottawa, Canada) has chosen Silicon Turnkey Express (Highland Heights, OH) to manufacture and distribute the RapidIO Hardware Interoperability Platform prototyping system. Silicon Turnkey Express is a division of RPC Electronics, an EMS provider.
Tier 1 Providers Help with Code of Conduct
Five tier-one EMS providers participated in the development of the Electronics Industry Code of Conduct just released by HP, Dell and IBM. The code outlines standards for socially responsible business practices across global supply chains.
Celestica, Flextronics, Jabil Circuit, Sanmina-SCI, and Solectron collaborated with the three OEMs to produce the code. It sets forth standard criteria for monitoring suppliers in the areas of labor and employment practices, health and safety, environmental responsibility, management, and ethics. For example, the code forbids the use of child labor in manufacturing and sets a limit of 60 hours for a work week, except in emergency or unusual conditions, with at least one day off per seven-day week. Also, programs must be maintained to ensure the confidentiality of supplier and worker whistleblowers.
Prior to the release of the code, the companies used their own codes of conduct, and suppliers were subject to multiple, independent vendor audits based on different criteria. A single code of conduct will potentially reduce inefficiency and duplication, while making performance easier to verify.
HP initiated this collaboration; the company saw more benefit in working with others than in continuing with its own code. “It’s more efficient if we’re all working together” on an industry code, said HP spokesperson Monica Sarkar. The company felt that a better implementation of the code would result if EMS providers were brought into the process.
Now that the code is released, HP expects every company in its supply base to follow it. HP has a process in place for handling code violations and is committed working with a supplier that does not comply. “Not to say we wouldn’t be prepared to really end that relationship if we find they’re not responsive to dialogue,” said Sarkar.
Celestica Opts Out of 64-bit Business
Celestica has decided to stop creating its own 64-bit reference designs and to end its channel distribution activities for these products. Instead, the company will redirect design teams to support OEM development projects. Also, Celestica plans to partner with product development firms to offer a broader range of solutions than the company could develop on its own.
When an analyst this month asked if Celestica has abandoned any kind of ODM approach, CEO Steve Delaney replied, “Absolutely not. I think we will have to stop using these terminologies of ODM and EMS. It seems like we’re all doing design and manufacturing services for our customers in one way or another.”
Nevertheless, Celestica is exiting the business of selling its own 64-bit product designs to channel customers, which some would say is akin to ODM work.
The company’s 64-bit business accounted for Q3 losses of about 3 cents a share, and Celestica had lost patience with the 64-bit market. “We’re finding the 64-bit market is just developing too slowly for us to economically invest in designs to be sold through independent channels,” Delaney told analysts.
For Q3, Celestica wrote off $16.6 million in inventory mostly associated with ending the 64-bit activities. Total pretax charges for the quarter were $47.7 million primarily resulting from the company’s restructuring activities. Celestica reported a Q3 GAAP net loss of $22.3 million on sales of $2.18 billion, which were up 33% from a year earlier. Adjusted net earnings for the quarter were $27.4 million.
Under the current restructuring program, Celestica will close its plant in Yamanashi, Japan. The provider acquired this facility in 2002 from NEC.
More recently in April of this year, Celestica quietly purchased another operation from NEC. The provider paid about $8.1 million for NEC assets in the Philippines. As a result, Celestica becomes the firs tier-one provider with a location in the Philippines.
Sanmina-SCI pursues 64-bit channel business
While Celestica is shutting down its 64-bit channel activities, Sanmina-SCI (San Jose, CA) is headed in the opposite direction. This month, Sanmina-SCI joined AMD’s Validated Server Program, through which Sanmina-SCI will provide servers based on the AMD Opteron processor to channel customers. Launched in June 2003, the AMD program is designed to supply AMD64 technology to system builders, system integrators and value-added resellers. For the program, Sanmina-SCI plans to introduce new systems, including two- and four-way barebones servers. The provider’s offering will range from enterprise-class servers to systems optimized for the value segment.
Celestica, which signed up for the AMD program in 2003, will be withdrawing from it.
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Still more restructuring…PEMSTAR (Rochester, MN) plans to reduce its US-based work force by 75 to 100 people, or about 5% of its domestic employees. The job cuts result from the company’s decision to integrate three Midwest sites into one virtual operational entity and to reduce development and manufacturing operations in San Jose, CA. In addition, PEMSTAR intends to eliminate 100,000 to 150,000 ft2 of manufacturing space in the Americas during the next two fiscal quarters. This reduction represents 14% of capacity. As a result of this reduction, the company plans to take total restructuring charges in the range of $2 to $4 million in the December 2004 and March 2005 quarters. Citing recent sluggishness in order levels, PEMSTAR has also reduced guidance for the September quarter. The company now sees sales ranging from $170 to $175 million, versus earlier guidance of $180 to $190 million. PEMSTAR anticipates a GAAP loss of $0.07 to $0.11 per diluted share, including $0.04 to $0.06 in restructuring charges and customer disengagement costs, compared with the previously expected $0.00 to $0.04 per share profit….As part of a transformation plan, SMTC will convert its Toronto, Canada, site into its technical center of excellence, with an emphasis on NPI and pilot production. This site will also continue to manufacture low-volume, high-complexity PCB assemblies. As mentioned earlier in this section, SMTC’s Chihuahua, Mexico, facility will serve as the company’s primary assembly operation. In addition, the company is streamlining its overhead, selling, general and administrative structure. As a result of operational and administrative changes, SMTC expects to incur restructuring charges of between $2.0 and $3.0 million related to a layoff of about 150 employees and relocation and transition costs during Q3 and Q4.
Some financial news… Flextronics recorded September quarter sales of $4.14 billion, which represents an increase of 18% over the same period a year ago. Excluding intangibles amortization, restructuring and other charges, net income for the quarter climbed 107% from a year earlier to $98.5 million. GAAP net income rose to $92.6 million….For the August quarter, Solectron reported sales of $3.01 billion, up 23% from a year earlier, and non-GAAP net income of $41.4 million from continuing operations. Non-GAAP results exclude restructuring and impairment costs and other unusual charges. A GAAP net loss of $44.5 million resulted from continuing operations during the quarter, while the GAAP net loss narrowed to $2.4 million when discontinued operations were included. For fiscal 2005, Solectron is projecting revenue growth of between 12% and 16% and non-GAAP earnings from 25 to 30 cents per share….Sanmina-SCI (San Jose, CA), has received commitments for a $500-million revolving credit facility. Also, as an existing investor in Fabric7 Systems (Mountain View, CA), Sanmina-SCI participated in the company’s Series B financing, which raised $17.5 million. Fabric7 is developing products for large enterprise data centers….PEMSTAR has secured more favorable terms for its $90-million revolving line of credit. The new terms, among other benefits, extend by one year the expiration of the borrowing agreement and could potentially save the company about $300,000 in annual interest expense over the prior agreement. In addition, a Dutch subsidiary of PEMSTAR has obtained a 5-million euro overdraft facility, which also includes the ability to borrow up to 2 million euros in short-term cash loans….SMTC has settled a claim in its favor for $1.9 million, related to a four-year dispute with a former customer over obsolete inventory. At about the same time, Carrier Access (Boulder, CO) announced a Q3 charge of $2.1 million to reflect the settlement amount and legal expenses associated with the settlement of litigation with SMTC….VOGT electronic (Obernzell, Germany) has secured a three-year financing structure from a group of banks….Nortech Systems (Wayzata, MN) has engaged McGladrey & Pullen as its new auditing firm, replacing KPMG, which had resigned from that role (Sept., p. 6-7).
Elcoteq Directors Propose SE Conversion
Elcoteq Network’s board of directors has decided to propose to shareholders that the Finland-based company be converted into a European Company, designated SE (Societas Europaea). Part of Elcoteq’s internationalization strategy, this conversion to an SE will authorize a single corporate structure throughout the 28 countries of the European Economic Area instead of having several separate subsidiaries as currently required. The act that establishes this new form went into effect in Finland this month.
“Elcoteq wishes to be among the first companies to exploit the benefits of conversion into a European Company. This will support our reputation as a pioneer and globally operating company, as well as creating greater international visibility both in Europe and elsewhere in the world. While respecting its Finnish roots, the company wishes to forge a clear European identity for itself,” stated Jouni Hartikainen, president and CEO.
As an SE, Elcoteq will be able to merge its subsidiaries in different countries with itself, thereby reducing the amount of central administration. The new SE form will generate savings in administrative costs as well as streamline decision-making, according to Elcoteq. The SE form will also make it easier to effect cross-border mergers, acquisitions and divestments as well as registration of the company in a new country, said Elcoteq.
The most probable date for conversion will be in the spring of 2005. Shareholders must approve the proposal in a general meeting, and negotiations must take place with employee representatives. With conversion, the company’s name will change to Elcoteq Network SE.
More company news…Solectron has selected Visiprise Manufacturing (Alpharetta, GA) as the foundation for the provider’s global quality control system. This action allows Solectron to replace numerous disparate systems and standardize on a single solution that supports its quality and lean manufacturing initiatives for all manufacturing operations worldwide….Jabil Global Services, a subsidiary of Jabil Circuit, has significantly expanded its capabilities for repairing LCD panels. JGS is broadening capabilities to include LCD polarizer screen repair, TAB and COG chip replacement, and the repair of many other electronic failures associated with LCD panels….Within China, Beyonics Technology (Singapore), an MMI Top 50 provider, is on plan to set up a die casting and precision engineering plant in Changshu and a fully integrated EMS plant in Suzhou. The company is also building a fully integrated EMS plant in Kulai, Malaysia, to consolidate its current Senai plastics molding and fabrication operations and one of its existing Tampoi PCBA operations. All three new plants are expected to be completed in early 2005….Creation Technologies (Vancouver, BC, Canada) has established a center of excellence for design in its Milwaukee, WI, facility. This team has the capability to complete designs from concept through schematic creation to PCBA layout, prototyping, value engineering and design for the environment….PKC Group Oyj (Kempele, Finland), which operates in the areas of wire harnesses and electronics, has set up a subsidiary, PKC Electronics Oy, to contain its electronics business in product development and contract manufacturing. The new company was scheduled to start operations on Oct. 1 with about 250 people.
People on the move…Solectron recently appointed Craig London to lead its worldwide services group. His title is executive VP of marketing, strategy and worldwide services. Prior to this role, London served as executive VP and president of the company’s Technology Solutions unit. Also, Solectron has hired Matti Virtanen to take the new position of senior VP and president of Europe, the Middle East and Africa. With more than 20 years in major electronics companies, Virtanen most recently was HP’s VP and managing director of International Sales Europe….After acting as SMTC’s interim president and CEO, John Caldwell has been named to this position permanently. He has also served as chairman of the board since March 2004. In keeping with sound governance practices, Caldwell intends to relinquish his role as chairman in due course. SMTC has also appointed Patrick Dunne as senior VP, operations. He will also oversee supply chain and engineering services. Dunne’s most recent position at SMTC was senior VP, Solutions Operations located in Franklin, MA. SMTC’s COO, Phil Woodard, who has been on a leave of absence sine June, has decided to retire from the company….John Boutsikaris has joined PEMSTAR as executive VP of sales and industry. Before coming to PEMSTAR, he held several senior-level management and executive positions at Agilent Technologies and HP and most recently served as VP of Agilent’s worldwide channel partner unit….Ralf Böer, chairman and CEO of the law firm Foley & Lardner, has joined the Plexus (Neenah, WI) board of directors….Three Five Systems, or TFS (Tempe, AZ), has named David McQuiggan as senior VP of the company’s Platform Display business. He was formerly CEO of Densitron Technologies, a UK company in the display business. In addition, TFS has made David Prunier senior director and GM of the company’s NPI and medical manufacturing facility in Redmond, WA. He joined TFS in September 2003 as senior director for the company’s medical products business. Before joining TFS, Prunier was GM for Plexus’ Seattle, WA, operation. …Micro Dynamics (Eden Prairie, MN) has promoted Jeff Schirmer to executive director of operations. He had been director of manufacturing.