MMI September 2002


Vol. 12, No. 9: September 2002


Table of Contents

Cover Story

Will Outsourcing Restart Growth Next Year?

M&A

Deals Reconsidered

Market Trend

More Signs of EMS/ODM Overlap

World Markets

EMS Not Always a Pure Play in China

Providers Pursuing Design in Philippines

News

Jabil To Acquire Philips Operations

S. Dakota Provider Sold

Deals done

New programs

Some military contracts

China facilities

Viasystems To Restructure Under Chapter 11

More financial news

Settlements reached

People on the move

More restructuring

Will Outsourcing Restart Growth Next Year?

This question will dog the EMS industry as it enters 2003. Outsourcing is the tonic for what ails the industry. Yet it is unclear whether there is enough outsourcing, from both organic wins and acquisitions, to restore the industry to healthy growth next year.

The current year, it appears so far, will end up down or close to a wash. A group of 17 publicly held providers, including the five largest, showed a first-half sales decline of 21% from a year earlier. Sanmina-SCI was added to the group after being left off inadvertently last month (Aug., p. 7). Unless the industry snaps back in the second half with year-over-year growth to more than make up for this decline, then math will keep the industry at or below a flat position. This scenario is borne out by market researchers, whose 2002 forecasts range from -5.0% to 3.0% growth and average -1.4% (table).

But the market researchers paint a different picture for 2003. Their 2003 growth projections average 14.7% with a high of 21.0% and a low of 7.0% (table). Whether or not the industry can return to such growth next year depends on how much outsourcing will turn into sales. Problem is, it’s hard to identify the available outsourcing for 2003 because much of it will be organic, and many organic wins are never disclosed. In addition, EMS providers consist of many moving parts. New business wins and existing program upsides must be netted against any sales reductions from ongoing programs and products at end of life. If new business comes from supplier consolidation, it may not add to the industry’s total. What’s more, public providers have not issued guidance for 2003.

One thing is becoming clear, though; divestitures will likely play a smaller role than in recent years. If first-half levels hold up, the number of OEM deals will be down from last year (July, p. 3). More importantly, the deal pipeline is smaller than it was about a year and half ago, according to Celestica’s chairman and CEO, Eugene Polistuk. Jabil Circuit’s president and CEO, Tim Main, agreed that the pipeline has shrunk and made his comparison from a year ago. Both offered these comments in recent conference calls.

For the second year in a row, it appears that outsourcing will not be sufficient to counter end market weakness. Eventually, outsourcing will win out. Will it happen in 2003? Stay tuned.


M&A


Deals Reconsidered

As end market demand, particularly in the communications sector, continues to disappoint, some OEM deals are being rethought. In one recent case, a major deal fell through. In two others, acquisitions that were agreed to needed to be revisited as business conditions changed.

Sanmina-SCI will not proceed with the acquisition of a final systems assembly and test operation in Lake Mary, FL and two European operations from Siemens Information and Communication Networks Group. The two parties had earlier signed a memorandum of understanding (May, p. 4).

According to a press statement from Sanmina-SCI, the transaction was terminated by mutual agreement due to general market conditions.

Sanmina-SCI described these operations as “EMS facilities,” which indicates that they also do EMS work.

Then there’s Celestica, which had to restructure its outsourcing agreement with Lucent (Aug. ’01, p. 6). As part of the deal closed last year, Celestica bought the Lucent facility in Columbus, OH. Celestica occupied a portion of the nearly 2 million ft2 in the Columbus facility and leased 45% of the facility to Lucent. The provider has now sold back the facility to Lucent and will close its manufacturing operations there. Products being manufactured at the Columbus site will be transferred to other Celestica sites. The majority of the Celestica employees at the site will be released.

A spokesperson for Celestica said this change was made in response to end-market challenges.

As another example, Jabil Circuit had to revisit its deal with Marconi (Jan. ’01, p. 5-6). Jabil is consolidating its Liverpool, UK plant acquired from Marconi into its Coventry, UK plant also bought in the Marconi deal. Marconi has agreed to reimburse Jabil for the cost of this restructuring (July, p. 8).

In addition, as of Jabil’s 10Q filing for the May quarter, the company had not acquired the German operation that was originally part of the Marconi deal. The two parties were reassessing that portion of the deal.


Market Trend


More Signs of EMS/ODM Overlap

Still not convinced that the EMS and ODM (original design manufacturer) markets are beginning to converge? The evidence for this trend continues to pile up with two more examples. Each case shows that EMS and ODM work can take place within the same organization.

In the first instance, Taiwan’s Wistron, an Acer spin-off listed as a major ODM (Aug., p. 2), has emerged as the second EMS source for Microsoft’s Xbox video game system. Having joined Flextronics as a contract manufacturer of the Xbox, Wistron must now be accepted as legitimate competition in the EMS space.

Wistron will begin manufacturing game consoles in its Zhongshan, China facility before the end of the year. For the Xbox program, the facility will provide services including parts procurement, assembly and integration, testing, and final box build.

Microsoft said it is extremely pleased with Flextronics’ performance, and the Wistron facility will handle incremental volume at this time.

In the second case, Venture (Singapore), an MMI Top 50 EMS provider, has added to its existing ODM business by designing and launching a digital color label printer.

ODM is one of two business lines for which Venture is planning to accelerate growth. For the first half of the year, Venture’s ODM business contributed 13% of sales totalling S$905.6 million. Six-month sales were up 33% over a year earlier, while net profits rose 35%.

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World Markets


EMS Not Always a Pure Play in China

Domestic market outweighs exports

For the past two years or so, China has been a magnet for EMS investment and facility building. But EMS companies aren’t the only entities in China that can do contract manufacturing. An unknown number of Chinese manufacturers, some very large, build electronic products on a contract basis as one of the activities they are willing to engage in.

Why should one care about these companies that may treat EMS as a sideline? These Chinese companies are primarily serving the domestic market for electronics manufacturing, which happens to be more than twice the size of the export market in China. “We estimated that 68.5% of the production was serving the domestic market, and 31.5% was being exported either as EMS and ODM assemblies or foreign sales production,” said Randall Sherman, one of the authors of a new report on China.

The report, entitled Electronics Manufacturing in China, is based on a survey of 54 manufacturers in China, accounting for $48.3 billion in COGS (cost of goods sold). This group represents 61.5% of the total electronics assembly market in China as the report estimates a total market size of $78.6 billion. The new report is published by Electronic Trend Publications or ETP (San Jose, CA).

“Essentially, all Chinese electronics firms are available for hire, either for product design (ODM) or contract assembly (CEMS). We could not identify any ‘pure play’ EMS providers there that have not been previously known,” said Sherman. He is also president of New Venture Research Corp. (Nevada City, CA), a market research and consulting firm.

If Chinese manufacturers are doing contract work in a big way, Sherman did not find much evidence for it. “We saw very little revenue for EMS being generated by Chinese OEMs, and they certainly did not identify it as such,” he noted. Still, the study mainly looked for export revenues since nearly all of these companies are focused on the domestic market. So contract manufacturing for the domestic EMS market remains uncharted territory.

Nonetheless, a few Chinese companies have the size and scale to be become worldwide competitors in EMS. “Obviously, China Putian is a very large telecom equipment provider that could do more [in EMS] if it wanted to abandon its domestic monopoly,” said Sherman. “I think Alcatel increased its investment percentage in Shanghai Bell and will clearly be looking into other markets. Also, Legend, Great Wall and HuaWei also have potential for expansion, but most are dependent on their local markets or external partners such as Compaq, IBM and HP.”

If there is one market segment ready made for China, its consumer electronics. Nam Tai Electronics is well-known as a pure-play EMS provider that utilizes Chinese manufacturing for its consumer electronics customers. But domestic Chinese companies are also building consumer electronics for others. One such company, Shanghai General Electronics Group Co., Ltd., also known as SVA, is among the manufacturers profiled in the ETP report. According to the report, SVA’s manufacturing group is one of the largest producers of consumer electronics in the world. The report lists Sony, Siemens, Sharp, JVC, Kenwood and National/Panasonic as customers for whom SVA makes consumer electronics.

Profit margins in the low single digits are especially characteristic of the larger Chinese companies, according to the report’s other author, Clive Jones. “These low margins highlight the fact that the priority really seems to be to provide employment. Capital is not a great problem for these larger companies, and most of them are carrying a lot of redundant labor on the books. Usually, their whole history in breaking away from their Central Planning buddies has been ad hoc, open to making almost anything,” said Jones. He also serves as manager of Economic Data Resources LLC (Boulder, CO).

Language can present a major barrier in dealing with Chinese providers. “The language problem is huge. So if you aren’t going to finesse the problem by going through Hong Kong intermediaries, you need to personally go to China and visit the plant that wants the contract. Then, you need to spend time making sure the Chinese engineers and technicians understand the design and the requirements. Interpreters are key,” said Jones.

Indigenous providers can present other problems including a major one – quality. “Best practices and six sigma concepts are quite radical and unproven ideas unless a company has a strong Western partner,” said Randall Sherman. “Turnaround time can be elusive since quite often the primary goal is to simply get the contract. Finally, delivery and component availability – and thus forecasts – are frequently out of control since many of the Chinese lack the supply chain tools and long-term relationships that are needed to manage large orders.”

Sherman estimates that of the $78.6-billion COGS assembly market in China 12.3%, or $9.6 billion, comes from EMS operations. He puts the joint-venture portion of the market at 22.2%, or $17.5 billion, and the OEM part at 65.5%, or $51.5 billion. ETP’s China report forecasts a compound annual growth rate of 17.5% for the overall assembly market in China from 2001 to 2006. That rate will bring the country’s assembly market to $175.7 billion in 2006.

Another ETP report, The Worldwide Contract Electronics Manufacturing Services Market, projects a 26.7% CAGR for the EMS market in China, which will reach $31.4 billion in 2006.

“Cost is the only compelling advantage to manufacture in China today. By our estimates, as much as 9% of COGS can be saved by manufacturing there, although this must be offset by increased logistical and inspection costs, estimated at 1 to 2%,” said Sherman.

For more on the report Electronics Manufacturing in China, contact saberry@electronictrendpubs.com.

Providers Pursuing Design in Philippines

One way to compete against China

The two largest EMS providers in the Philippines, Integrated Microelectronics Inc. (IMI) and Ionics EMS, have added design services to their repertoire. Designs services help these companies position themselves against perhaps their biggest rival – China.

Ionics EMS recently expanded its services into design and has been awarded a design project by one of its major customers. For IMI, the move into design began earlier with the formation of its design subsidiary, EAZIX, in 1998. IMI continues to invest in EAZIX, which was up to 40 design engineers this summer. EAZIX not only offers DFM and DFT, but also software and hardware engineering (see also May, p. 6).

Through EAZIX, IMI is following a product realization strategy. For example, IMI is working with some customers to develop a storage product for the optical disk drive market. And during the summer, IMI was working on an alliance with a European company that will provide design expertise on the wireless side, an important segment for IMI.

As some large providers have done, IMI is pitching its design services to OEMs that do not want to waste engineering time on redesigns of existing products. IMI sees opportunities in redesigning a product for a different part of the world. “We’re finding out that a product that may not be used any more in the United States is really ramping up in South America,” said Arthur Tan, IMI Group CEO and president.

By offering such value-added services, IMI can resist being tagged a cheap-labor company. It can also differentiate itself through certifications to ISO 9000, ISO 14000, and QS9000 and through a quality system that won the Philippines equivalent of the Malcolm Baldrige Award.

Still, IMI cannot ignore the lower costs of labor available in China. “I think for everybody in the Southeast Asian region China is a threat,” said Tan. He believes his country’s engineers give the Philippines an advantage over China. “The Philippine engineers are a very, very creative group of engineers, are very well skilled, and speak very good English. So there are a lot of intangibles associated with doing business with us,” he said. Tan also gave the nod to the Philippines when it comes to productivity, quality and the need for on-site management.

IMI recently extended services to Europe through an alliance with TQ Systems, an EMS provider in Germany. TQ will provide prototyping for programs starting in Europe and expertise in microprocessor and memory modules.

A member of the Ayala Group of Companies, IMI (Laguna, Philippines) has enjoyed first-half growth of about 17% year over year.

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News


Jabil To Acquire Philips Operations

Royal Philips Electronics (Amsterdam, the Netherlands) has agreed to sell most of its Philips Contract Manufacturing Services unit to Jabil Circuit (St. Petersburg, FL). Under this deal, Jabil will get nine Philips plants, about 5000 employees, and a four-year supply agreement with a guaranteed minimum of 4 billion euros in total revenue.

This acquisition will benefit Jabil in several ways. The company will gain a new 10% customer in Philips and a broader customer mix, diversification into consumer electronics, more low-cost capacity, and consumer electronics expertise. Not only that, unlike typical OEM deals, this one comes with a Philips management team that already has EMS experience.

Created in 1999 as an independent PCBA unit within Philips, Philips Contract Manufacturing Services (PCMS) started to actively market itself as an EMS provider last year. In October 2001, the unit took on its current name to reflect this new role. Still, most of PCMS’s business comes from Philips Consumer Electronics (PCE), whom Jabil will be supplying under the four-year agreement. PCMS produces 70% of PCE’s PCB assemblies and does some box-build work for PCE. Box build represents about 20% of PCMS’s revenue.

Jabil declined to identify PCMS’s external customers and said this external business was not of significant consequence.

Subject to closing adjustments, the purchase price is about 235 million euros, net of assumed liabilities put at 65 million euros. So the PCMS assets were valued at 300 million euros, consisting of about 125 million euros for intangibles and the balance equally split between fixed assets and inventory. Jabil expects that the transaction will be completed by year end. Closing is subject to antitrust clearance by regulators and consultation with trade unions and workers councils.

The nine plants being acquired are located in Manaus, Brazil; Shenzhen, China; Szombathely, Hungary; Pimpri, India; Kwidzyn, Poland; Singapore; Vienna, Austria; and Hasselt and Bruges, Belgium. Low-cost locations will contribute about 80% of the capacity that Jabil is adding. The company is gaining about 760,000 ft2 of manufacturing, of which about 580,000 ft2 is in low-cost sites. The deal will also double Jabil’s low-cost footprint in Europe.

Overall, low-cost manufacturing will increase by 18%. Yet the deal will not move Jabil’s ratio of low-cost to high-cost footprint by very much. Today, the low-cost footprint stands at about 54% or 55% of the total and will increase to 57% when the deal closes.

What will increase greatly is Jabil’s consumer electronics business, in keeping with its segment diversification strategy. Jabil will supply key components for a wide range of Philips products including TVs, DVD and audio systems, storage and display products and set-top boxes. The provider will furnish design and engineering services, NPI, prototype and test services, procurement, PCBA, and final assembly and integration.

Consumer electronics has emerged as an attractive segment for Jabil as well as other providers. It’s a relatively large sector with a low level of outsourcing penetration. Jabil and Philips use $150 billion as the size of the available market in consumer electronics. Jabil believes the current penetration rate is 9% to 10%. “We think the growth rate of the EMS providers in consumer electronics will be about a 40% compound annual growth rate as that penetration increases,” said Tim Main, Jabil’s president and CEO, during a conference call.

Will this deal encourage other consumer electronics companies to do the same? As Philips is the world’s third largest consumer electronics company, “I think their competitors will take note,” said Main. Even though this deal will add to what Sony has done, Main does not expect such deal making to accelerate to three or four agreements over the next couple of quarters. “I don’t think the Japanese move that fast,” he said. “But I think they’ll all take note, and this will be a catalyst for the rest of the industry segment to continue to deverticalize.”

In Philips, Jabil gains a major customer, which will add diversity to Jabil’s customer mix. Jabil figures that Philips will become a top-three customer in fiscal 2003 along with Cisco and HP. Main expects Philips to become a “twentyish” level customer. The European OEM not only is large, but also is in a strong financial position.

The deal brings Jabil yet another benefit – expertise in consumer electronics. This knowhow extends to both manufacturing and design. With regard to the latter, Jabil will be adding about 150 product development and design engineers. “I think our competency level in this industry segment will take a quantum leap in this transaction,” said Main.

Existing Jabil facilities will also gain from this deal. An estimated 10% to 20% of the Philips business will be moved to existing Jabil sites.

Jabil expects the deal will be accretive to fiscal 2003 earnings, on both a GAAP and cash EPS basis. The Philips operations turn inventory between 10 and 11 times, compared with 9 to 10 times for Jabil’s organic business. Operating margins on the Philips business are expected to be lower in general, reflecting higher material content. Jabil plans to achieve full production with the Philips business by the end of fiscal 2003.

Unlike many OEM deals, this transaction does not come with poorly loaded plants. Overall loading of the Philips facilities is about 75% to 80% on a two-shift basis.

About 30% of production takes place in Asia. “Over the years, you could see some further migration to Asia, but not a significant change from where it is today,” said Chris Lewis, Jabil’s CFO.

Since about 51% of Philips’ consumer electronics business is based in Europe, Jabil believes that it will continue to utilize the Hungarian and Polish sites for production. The three Western European sites are mainly NPI and product creation centers.

This is the fifth deal Jabil has announced in 2002. In comparison, the company only closed two deals in each of the previous two years. Most recently, Main explained that from 1999 to early 2001 the company could rely on organic growth of 40% to 60% a year. Given a choice, Jabil prefers organic growth, which is easier to manage than growth by acquisition. But the bubble years are over, and so too are deals with inflated valuations. Not only that, Jabil is a larger company today better able to absorb and integrate acquisitions through its Operations Development staff, said Main during the acquisition Q&A.

Note that Jabil is not purchasing all of PCMS’s operations. Three PCMS sites are not part of the deal. The PCMS site in Suzhou, China, is not included because it’s part of a local joint venture. PCMS’s operation in Louviers, France, is not part of the transaction, says Philips, because the site’s products and people are quite different from the rest of PCMS. A site in Juarez, Mexico, is not included either, but Jabil will take over the business activities of PCMS Juarez. Presumably, this Mexican business will end up at existing Jabil facilities in a process of regional optimization that will take place between Jabil and PCE.

Philips becomes the latest example of an OEM that enters the EMS business, but doesn’t stay. What’s more, this is the second time around for Philips as a contract manufacturer (Dec. ’01, p. 8).

Quantum outsources to Jabil

Following on the heels of the Philips deal, Quantum (Milpitas, CA) has decided to outsource its current tape drive manufacturing to Jabil. The provider will utilize Quantum’s leased facility in Penang, Malaysia, to manufacture tape drives and some tape automation products. The 150,000-ft2 facility sits across the street from Jabil’s plant in Penang. Jabil will also buy $30-million worth of production equipment and inventory from Quantum.

As part of a restructuring program, Quantum will cut 1100 jobs, 80% of which are related to the outsourcing agreement with Jabil. The provider said it will hire 200 to 300 people from Quantum.

Jabil is Quantum’s largest and highest-rated supplier of tape-drive components.

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S. Dakota Provider Sold

Everett Smith Group, Ltd. (Milwaukee, WI), a privately held investment company, has acquired OEM Worldwide, a full-service EMS provider based in Watertown, SD. OEM Worldwide was a subsidiary of ANZA, Inc. Terms were not disclosed.

With nearly 200 employees, OEM Worldwide maintains two operations – a 43,000-ft2 facility in Watertown and a 34,000-ft2 plant in Spearfish, SD. The provider has annual sales of about $40 million.

Although the acquisition marks Everett Smith Group’s entry into the EMS business, that was not its motivation for making the deal. “We were interested in diversifying our portfolio and specifically targeting the medical and industrial markets that OEM participates in,” explained Thomas Hauske, executive VP at Everett Smith Group.

Assemblies produced by OEM Worldwide are used in a variety of medical and industrial products such as portable heart defibrillators, blood analyzers, satellite tracking devices, electronic CD storage devices, voice recognition equipment and thermal transfer printers.

“We purchased OEM Worldwide with the intention of reinvesting in its manufacturing processes, technical capabilities, equipment, facilities and its people. We want OEM Worldwide to reach its full business potential,” stated Anders Segerdahl, president and CEO of Everett Smith Group.

Hauske added, “We do have a history in all our companies of reinvesting.”

OEM customers also stand to benefit from the deal. “This acquisition should be viewed favorably by OEM’s customers in that we’re going to provide OEM with the ability to continue to reinvest in the business to support their customers’ growth requirements,” he said.

Ted Miller has been president of OEM Worldwide and will continue in that role under Everett Smith Group.

Founded in 1989, OEM’s Watertown operation grew out of Midcom, a transformer manufacturer that is part of the ANZA group.

Everett Smith Group through its holdings is a large supplier to the automotive industry. Since the early 1960s, the group has owned Eagle Ottawa, a manufacturer of automotive upholstery leather; Maysteel, a fabricator of metal enclosures; Trostel, a supplier of rubber compounds and seals; and Trostel SEG, a manufacturer of urethane and thermoplastic products. These companies employ more than 5500 people on four continents. Sales of Everett Smith Group were estimated at $700 million for 2001.

At present, the group has no specific plans to make further acquisitions in the EMS industry.

Deals done…Flextronics (Singapore) has completed an outsourcing agreement with Japan’s Casio Computer (May, p. 2). The value of the agreement, originally put at $1.5 billion over three years, is now estimated at $2 billion over four years. Flextronics has also closed on its purchase of Elisa Instalia, the network installation and maintenance arm of Finnish telecom carrier Elisa Communications (July, p. 6).

New programs…Asyst Technologies (Fremont, CA), a supplier of automation for semiconductor manufacturing, will outsource most of its manufacturing operations to Solectron (Milpitas, CA) under a five-year supply agreement. The agreement is expected to generate $100 million in revenue the first year and growing sales thereafter. These operations will be moved to Solectron’s facilities in North America and Asia over the next six to 12 months. Acting as sole source of electromechanical manufacturing services for Asyst, Solectron will provide Asyst with complete product life-cycle services. Solectron will buy about $20 million of Asyst inventory to support production. About 180 Asyst employees will also join Solectron for support during the transition period….Jabil Circuit has announced new relationships with Toshiba America Consumer Products, Andrew Corp. and Advanced Fiber Communications. Also, the provider has landed a system assembly program from HP, an existing customer. The program is related to LaserJet printer production….Flarion Technologies (Bedminster, NJ) has contracted with Flextronics to produce Flarion’s new base station and PC card products for a mobile broadband system….Corrigent Systems (San Jose, CA) has selected Sanmina-SCI (San Jose, CA) to provide contract manufacturing for a new metro transport product line….Under a new agreement, PEMSTAR (Rochester, MN) will upgrade the functionality of Valeo Service’s diagnostic tool for automotive air conditioning and start producing the device with accessories at the PEMSTAR facility in Almelo, the Netherlands. Valeo Service, a unit of automotive supplier Valeo, used PEMSTAR for design and manufacturing of the original device….Nam Tai Electronics (Hong Kong) has won Huizhou TCL Mobile Communication Company Ltd. as a new customer. TCL Mobile, ranked as the third largest manufacturer of mobile phones in China, has ordered mobile phone LCD modules from Nam Tai. The provider holds small stakes in TCL and its parent….The CTS (Elkhart, IN)-sponsored Alliance program has delivered on its first turnkey design and simulation project. Two Alliance members, CTS Interconnect Systems and Pentair, have supplied high-speed design and manufacturing services for the development of Newport Networks’ new gateway product. CTS designed the backplane, while a Pentair subsidiary designed the chassis assembly. Newport is developing solutions for voice and multimedia over IP (Internet Protocol)….ExpressPoint Technology Services (Minneapolis, MN), a provider of life-cycle support services, has landed a support services program from Termtek Computer (Taipei, Taiwan), a thin client ODM. Under this agreement, ExpressPoint will service Termtek’s thin client products in support of its OEM customers and distributors in North America. ExpressPoint plants in Minnesota and California will support this program….Tata Infotech (Goa, India) will manufacture Diebold automated teller machines for distribution in India and south/southeast Asia.

Some military contracts…Sanmina-SCI’s Defense and Aerospace Division (Huntsville, AL) has delivered a new mobile communications system to a US Army National Guard unit. The system was designed by Sanmina-SCI engineers….LaBarge (St. Louis, MO) has secured a $3.2-million contract with Raytheon’s Electronic Systems (El Segundo, CA) to produce backplane assemblies for the F-22, a new stealth fighter developed for the US Air Force. LaBarge has also received contracts worth $2.7 million from Lockheed Martin Naval Electronics & Surveillance Systems (Syracuse, NY). Under these programs, LaBarge will produce circuit card assemblies for two of Lockheed Martin’s radar systems: a ground-based, early warning system for military forces and a commercial air traffic control system.

China facilities…In Tianjin, China, CTS has relocated to a new larger facility with six high-speed SMT lines and 28,500 m2. Of that space, 20,000 m2 is devoted to the manufacture of communications components, and the rest is being used for crystal oscillator manufacturing. Accredited to ISO 9001-2000, the Tianjin facility houses CTS’s Wireless and Interconnect Divisions. The facility acts as the China site for CTS Interconnect Systems, but the unit can also use CTS’s plant in Guangdong Province when needed….The China-based Contract Manufacturing Services (CMS) unit of VTech Communications (Hong Kong) has gained TL9000 and ISO 9001-2000 approvals. These certifications apply to VTech’s Hong Kong office and the Chinese factory used by its CMS unit.

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Viasystems To Restructure Under Chapter 11

Viasystems Group (St. Louis, MO) plans to recapitalize its balance sheet through a voluntary prepackaged bankruptcy proceeding under Chapter 11 of the US Bankruptcy Code. The company, its bank lenders, a group of noteholders and Hicks, Muse, Tate & Furst have reached a final agreement that calls for the exchange of about $740 million of Viasystems’ debt into common and preferred stock. Earlier, Viasystems had announced that it would pursue financial restructuring (June, p. 8).

As a result, Viasystems’ debt, net of cash, will decline from about $1.1 billion to about $380 million, and interest will decrease by about $70 million a year.

Once the company receives the necessary consents from creditors, the voluntary Chapter 11 proceeding will take place. That proceeding is expected to be filed in late September, with the aim of restructuring in mid-November. Viasystems has already secured sufficient agreements to meet the requirements of the Bankruptcy Code for confirmation of the restructuring plan.

The company will continue business as usual through its operating subsidiaries, which will not be party to the proceeding. Viasystems anticipates that customers, employees and suppliers will not be affected by the restructuring.

During the reorganization proceeding, senior lenders will make financing available for $37.5 million of working capital. When recapitalization is completed, Viasystems will have a cash balance of about $80 million and a new revolving credit facility of up to $62 million.

More financial news…Celestica (Toronto, Canada) has redeemed its 10 1/2% senior subordinated notes due 2006. The outstanding principal of the notes amounted to $130 million….XeTel (Austin, TX) has received an extension of its asset-based loan facility, which now expires on Oct. 4. The extension reduces XeTel’s borrowing limit to $2.6 million at the start, $1.85 million by Sept. 9, and $1.1 million by Sept. 23 (see also July, p. 7). The company has also withdrawn its application to transfer the listing of its common stock from the Nasdaq National Market to the Nasdaq Small Cap Market….LaBarge (St. Louis, MO) has reported its sales for fiscal 2002 ended in June rose slightly to $120.1 million from $119.2 million the year before. Net earnings came up a bit to $3.9 million versus $3.8 million a year earlier. But there was no amortization in fiscal 2002, whereas fiscal 2001 included $927,000 in amortization. EBITDA for fiscal 2002 amounted to $9.3 million compared with $11.2 million in fiscal 2001. Shipments to defense customers were up 40% during fiscal 2002….VOGT electronic (Obernzell, Germany), a Top 50 provider with businesses in passive components and PCBs, posted June quarter sales of about 141 million euros, which were virtually flat versus the previous quarter’s sales of 142.4 million euros. The company expects to report an EBIT loss of about 15 million euros in the June quarter, or company’s fiscal Q3. For the first three quarters of fiscal 2002, sales dropped 26% from the year-earlier period to about 403 million euros. VOGT expects to post a “marked negative result” for its current fiscal year.

Settlements reached…Sparton (Jackson, MI) has reached an agreement with the US Department of Energy and others to recover past EPA remediation costs associated with Sparton’s Coors Road site in Albuquerque, NM. The provider will receive $4.85 million from the DOE and others in fiscal 2003, plus $1 million in fiscal 2004. In addition, DOE has agreed to reimburse Sparton for 37.5% of future remediation expenses above $8.4 million. Remediation efforts at the site began in 1983….IEC Electronics (Newark, NY) has reached a settlement with Acterna, whom IEC had sued for unpaid invoices and breach of contract. Under the settlement, IEC will receive $3.1 million over a period through Oct. 1, 2003. IEC said the settlement has enabled the company to reduce its term loan substantially.

People on the move…Nam Tai Electronics has appointed Joseph Li as CEO and president and Ming Kown Koo as CFO…Nortech Systems (Wayzata, MN) has made Michael Degen permanent president and CEO. He had been serving in that role on a interim basis after the death of Quent Finkelson. (May, p. 8)….Integrex (Bothell, WA) has promoted Alan Fuhrman from senior VP to president. The company said his experience will be important to its expansion in the medical device industry. Fuhrman has over ten years experience as CFO for medical device and electronics manufacturing companies….LaBarge has named Randy Buschling as its COO, a newly created position. He had been senior VP overseeing the company’s core contract manufacturing busi-ness….Michael Carter has joined Corlund Electronics (Vista, CA) as president and COO. His experience includes executive roles at Fine Pitch Technology, NatSteel Electronics and ACT Manufacturing….PEMSTAR (Rochester, MN) has appointed Greg Lea as its permanent CFO. He had been serving as interim CFO in place of William Kullback. A PEMSTAR director since 2001, Lea retired from Jostens Corp. in March 2002. His background also includes senior financial management at IBM….Mac Blythe has rejoined MSL (Concord, MA) as VP of marketing….Austin Manufacturing Services (AMS), a provider based in Austin, TX, has hired Jim Sloan as director of sales & marketing for North America. Sloan has 13 years experience dealing directly with contract manufacturing. He will be based in Portland to focus his attention on the Northwest market. AMS, a subsidiary of the ACI Group, operates facilities in Nampa, ID, as well as Austin….Flextronics has appointed Dr. Hirotaka Takeuchi, dean of the Graduate School of International Corporate Strategy at Hitotsubashi University, to the company’s board.

More restructuring…Jabil Circuit will close is Boise, ID plant. The company expects to take fiscal 2003 restructuring charges of between $60 and $80 million associated with this and other cost reduction efforts….Flairis Technology (Singapore) is winding down its EMS subsidiary in the US. The US subsidiary focused mainly on prototyping and NPI.

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MMI August 2002

MMI October 2002

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