MMI September 1999


Vol. 9, No. 9: September 1999


Table of Contents

Cover Story

Solectron Targets Supply-Chain With SMART Deal

Feature Articles

Introducing a Series on Supply-Chain Tools

CSM Hits Purchasing Sweet Spot

Quoting and Procurement Tools Forge Supply-Chain Links

News

Compaq Sends Server PCBA To Flextronics

More new programs

New alliances

Some financial results

EMS company news

Shortages Reported


Solectron Targets Supply-Chain With SMART Deal

Sees itself as more than an EMS provider

In what is billed as the largest deal ever in the EMS industry, Solectron has passed over the usual industry candidates — competitors and OEM divestitures — to obtain what is essentially a products supplier to the OEM supply chain.

Solectron has inked a definitive agreement to acquire SMART Modular Technologies, a Fremont, CA-based supplier of memory modules and cards, embedded computers, and modems and I/O devices. With this acquisition, Solectron says it will take another step in expanding its service capabilities and infrastructure as it transforms itself from EMS provider to global supply-chain facilitator.

The transaction was valued at about $2 billion based on the Sept. 10 closing price of Solectron stock. The deal was announced on the next business day, Sept. 13. Under the terms of the agreement, Solectron will exchange 0.51 share of its stock for each share of SMART stock. Solectron will issue about 23.1 million shares of Solectron common stock and assume all stock options held by SMART employees. Subject to government and SMART shareholder approvals, closing is targeted for December. The transaction will be accounted for as a pooling of interests.

SMART will join Solectron’s Force Computers unit and other design groups within Solectron to form a technology solutions business unit. As result, Solectron will comprise three business units: technology solutions, manufacturing and operations, and global services, all supported by the company’s materials organization. This structure reflects Solectron’s vision of a supply-chain facilitator.

“Solectron’s global supply-chain facilitator model is made up of business-unit enterprises, consisting of highly efficient and cost effective technology, materials, manufacturing and operations, and global services. All of these units are integrated with effective supply-chain processes and systems to provide real-time information internally between business units, and to the global market. This will enable Solectron to respond with the most effective and efficient supply-chain solutions from technology, through fulfillment and global services for the time-dependent marketplace, where technology innovations continue to shorten product life cycles,” states Dr. Ko Nishimura, Solectron’s chairman, president and CEO.

With this emphasis on speed, customers have been pressing Solectron for a more complete design solution. “The acquisition of SMART will significantly enhance Solectron’s current technology and design capabilities, which are critical to the success of our global supply-chain facilitator model,” Nishimura told analysts in a conference call.

SMART’s design capabilities will increase Solectron’s access to PC, server and networking design teams. The company has sought to penetrate customers earlier in the product cycle, as evident in its earlier acquisition of Force Computers, an embedded computer house.

Also, through SMART’s materials capabilities Solectron will expand its design-in influence on materials selection and commodity control. Since SMART is working with OEM designers at the subsystem level, SMART can influence what goes into the OEM’s bill of material. It behooves a provider to get its preferred parts designed in (see article on p. 3-4). For commodity control, SMART will enable Solectron to increase its leverage for buying memory, a key component of a product’s cost structure.

For Solectron’s fiscal 2000, SMART is expected to contribute revenue and net income of about $1.1 billion and $70 million respectively, based on Wall St. consensus estimates. The deal is expected to add about 9 cents to Solectron’s fiscal 2000 EPS before transaction charges. SMART’s margins are higher than Solectron’s.

Solectron and SMART share a lot of customers. According to Solectron, SMART is as strong in datacom as Solectron is and serves such networking companies as Cisco Systems and 3Com. Other SMART customers include HP and Compaq, with the latter being SMART’s largest customer. Solectron believes that integrating SMART’s subsystem products will give customers a better supply-chain solution.

“We are continuing to see increased customer demands for complex manufacturing process capability for our new product offerings within memory, data communications, and embedded boards and systems. By joining forces with Solectron, it will allow us to focus on our products and technology offerings while accelerating our growth by utilizing Solectron’s advanced manufacturing process strengths, operations capability and global footprint. At the same time, we will be able to utilize our technical, sales, marketing and design strengths to create an effective supply-chain process for our customers,” states Ajay Shah, SMART’s chairman, CEO and cofounder.

In the past, SMART had considered sites in Brazil and China, but did not have the demand to support facilities there. Now SMART sees a possibility of using Solectron facilities in these locations as well as the potential to take advantage of Solectron sites in low-cost regions of the world.

Plans call for continuing the SMART brand and product offering. “Clearly, our intention is to drive the sales of the memory modules and subsystems on an independent basis,” said Shah in the conference call. “We’re looking to drive synergies from the point of view of Solectron’s customer base.” The two parties expect to do a lot of joint selling to OEMs in the future.

Selling EMS and product solutions to OEMs is not unheard of in the EMS industry. Celestica follows a similar model in that it offers memory and power products in addition to manufacturing services.

Semiconductor companies represent another outsourcing opportunity for SMART, which reportedly can offer them a better model for logistics. Although Solectron itself is a SMART customer, Solectron says internal sales will not be the most important factor in gaining market share for SMART.

More than half of SMART’s business comes from memory modules and cards. Nevertheless, in the new technology solutions business unit embedded boards and systems will have a market-leading position. Last month, SMART acquired Compaq’s embedded and real-time product line and business. That business was originally part of Digital Equipment, which Compaq acquired last year. Counting the embedded business acquired from Compaq, SMART’s original computer board activity and Force Computers, the two parties believe that this combined business will be the largest independent vendor of embedded boards and systems, offering a broad range of computer platforms.

Other offerings of the technology solutions business unit will include communications solutions such as I/O, networking and wireless devices and PC/server solutions.

When the deal closes, SMART’s Shah will become president and CEO of the new business unit. As such, he will be responsible for developing Solectron’s technology and design roadmap and for building its technology and design service offering.

In SMART, Solectron will acquire 1900 employees, 32 SMT lines and other equipment, and 290,000 ft2 of manufacturing capacity. As result, Solectron will gain a manufacturing presence of about 82,000 ft2 in Aguada, Puerto Rico. SMART also operates factories in Fremont, CA (110,000 ft2); East Kilbride, Scotland (about 65,000 ft2); and Penang, Malaysia (about 33,000 ft2). What’s more, SMART’s design center in Bangalore, India, will put Solectron in that country. Other design centers are located in Fremont; Boston, MA; and Ayr, Scotland. Solectron has no plans at present to consolidate any design or manufacturing operations of the two companies.

When Solectron begins the integration process, it will face an ERP issue. Solectron is a Baan house, while SMART runs on SAP.

This is not a garden-variety transaction in the EMS industry. Not only is the deal large, but it results from a strategy that looks beyond the conventional borders of the industry. As a result, Solectron will extend its influence over the front-end of the supply chain.

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Introducing a Series on Supply-Chain Tools

To see how important supply-chain management has become to some EMS providers, look no further than Solectron. The world’s largest EMS company now positions itself as a supply-chain facilitator (see article on p. 1). Consider also Celestica, which has been quite public about its purchases of supply-chain software this year and the capabilities that result. Then there is Flextronics, which believes that IT infrastructure, largely a supply-chain issue, is a key differentiator.

But such top-10 providers aren’t the only ones staking a claim to the supply chain. SMTC Manufacturing, a Canada-based provider in the mid tier, has identified supply-chain management as its niche.

Companies such as these cannot manage the customer’s supply chain without tools. And one or two software packages will not cover every activity in the chain. There are tools for component and supplier management, quoting and procurement, advanced planning and scheduling, and product data management, to name the most obvious categories. As the Internet has become the new backbone for supply-chain management, it has led to a number of developments in supply-chain tools.

Still, some would say now is not the time to be buying supply-chain software, with Y2K bearing down. Maybe so. But at this point, Y2K should be a tactical problem. On the strategic side, one would hope EMS companies are planning for life after Y2K.

So this month begins a discussion of supply-chain management software that applies specifically to the EMS industry. This first installment covers tools for component and supplier management and for quoting and procurement. Other types of software will be treated in one or more future issues.

CSM Hits Purchasing Sweet Spot

To combine component buys across facilities and customers, EMS providers now have two choices. Create their own component database along with the software to query it or buy a commercial solution known as component and supplier management (CSM) software. Lately, several large providers — namely, Celestica, Manufacturers’ Services Ltd., and Solectron — have opted for CSM software.

CSM packages include software and a large component database that allow an EMS provider to aggregate component demand by manufacturer’s part number. This capability is sometimes called strategic sourcing. With CSM, an EMS provider solves a longstanding problem created by the industry practice of tracking components by customer part number. Under the old system, two sites or programs could be ordering the same manu-facturer’s part under two different customer part numbers and not even know it. Needless to say, you don’t achieve purchasing leverage that way.

What’s more, CSM gives a provider the ability to consolidate buys from multiple sources on an AVL to a single preferred supplier. By using the CSM database, a provider can cross reference from one component source to an equivalent part supplier that might offer a better pricing option if volumes were shifted to that supplier.

The ability to find equivalent parts also comes in handy when a component is nearing obsolescence. End-of-life schedules for components can be incorporated within CSM solutions. That way, a provider can notify the customer in advance to switch from an end-of-life part to an equivalent that will be available.

In addition, a CSM solution can provide other information such as component pricing over time and supplier performance.

With price tags that can exceed $1 million, CSM packages aren’t cheap. But at least three EMS providers have justified the cost. Take Manufacturers’ Services Ltd. “You should be able to repay your investment within six to nine months depending upon the level of business that you do,” says Steve Darendinger, executive VP for supplier management at MSL. That investment includes the cost of implementation, he notes.

MSL justifies the cost of its CSM solution from Aspect Development (Mountain View, CA) in two ways. First, MSL needs a solution that can work with any ERP system. “As we acquire new companies, we want to be able to immediately leverage their buying with our buying on an aggregated basis. This allows us to do that very quickly because it can be ported to any ERP system,” explains Darendinger. “The other aspect comes in when we’re leveraging the additional components that we have based upon this system being able to aggregate by manufacturer instead of just customer part number. We can aggregate all of that and then in return put a certain cost reduction against that.”

The Aspect solution has led MSL to create its own separate database called GISSMO, which extracts from both the Aspect database of over three million components and MSL’s Baan ERP system. GISSMO data is pulled based on a menu that MSL custom tailored to its needs. The company also equipped GISSMO with the means to report MSL inventory levels anywhere in the world by manufacturer and manufacturer’s part number.

According to MSL, GISSMO optimizes its ability to leverage global purchasing of materials, in terms of both current spending and future requirements. In addition, GISSMO acts as a decision support tool for buyers and commodity managers, who can see the latest pricing and inventory on hand for a given component. With GISSMO, they can understand what the price is locally and whether or not it is competitive. The system also gives them alternative suppliers for like parts that are close to spec.

Furthermore, GISSMO provides a resource for MSL’s design engineers. Darendinger explains, “It offers for our design engineers a library that consists of our approved and preferred suppliers and parts.” MSL plans to give customers Internet access to this preferred parts library so they can select MSL-preferred parts during design. A customer interface to GISSMO will be part of MSL’s e-commerce solution.

Celestica, another Aspect customer, has already announced a similar program for its customers. Combining Aspect’s CSM technology with Celestica’s extranet, the provider’s SupplyFlex program will allow customers to select standard components from Celestica’s preferred suppliers (May, p. 10). These suppliers agree to give Celestica flexibility in order quantities beyond the first one or two weeks of its forecast. Celestica in turn will give customers the ability to change order volume without affecting the supply of preferred components as long as the changes occur after a certain time interval. SupplyFlex is scheduled for completion by the end of the year.

Included in Celestica’s CSM purchase from Aspect is a module for strategic sourcing, now called eSource, which collects and consolidates information about volume, pricing, inventory, supplier performance, purchasing history and future requirements across all new and legacy systems, creating a single, unified repository. Celestica also bought a life-cycle management tool that ensures engineers receive obsolescence data in time to avert redesign issues.

But Aspect isn’t the only CSM solution in use by the EMS industry. Solectron has become a CSM customer of IQXPERT (Englewood, CO). This company offers CSM software under the ItemQuest name along with a component database called CAPSXpert and implementation services. Described as a family of four different databases, CAPSXpert contains more than 11 million electronic parts. The family is divided into ICs and discrete semiconductors, passives, PCB connectors, and hi-rel connectors. IQXPERT also sells CAPSXpert separately with an average price tag of $10,000 to $11,000. About 10 contract manufacturers are using the component database. Estimated costs for IQXPERT’s solutions range between $500,000 and $3 to $4 million, with a typical deal in the $1- to $2-million range.

ItemQuest users can search for replacements, acceptable substitutes, pin-for-pin equivalents, upgrades, downgrades, preferred status, and duplicate components. The CSM software can keep track of parts information such as pricing and availability, incoming inspection results, technical attributes, and manufacturing data. A new feature called the Shopping Basket acts as a parts list manager, allowing the customer to integrate parts data between ItemQuest and other systems such as ERP.

IQXPERT is promoting its ability to access legacy data in multiple databases across the enterprise. With this approach, there is no need to move legacy data into a central database.

Still, CSM systems do not operate in a perfect world. When it comes to part-number equivalents, contract manufacturers and their customers are not always on the same page. Deborah Wilson, a Hampstead, NH-based consultant in purchasing automation, illustrates this point with an example. She says one customer might specify a logic part with TI, IDT and Motorola as equivalent sources. Another might list TI, Motorola and Cypress as suppliers for its logic part. “Customers will argue the last part is not compatible,” Wilson points out. [Seewww.purchasingautomation.com.]

One way around this problem is to get the OEM’s engineers to design in parts that are preferred by the contract manufacturer, as Celestica and MSL plan to do.

Is CSM strictly a tool for large providers? If CSM cost is to be justified based on savings in worldwide spending, then it will call for certain minimum purchasing volumes. But that scenario may change in the early part of next year when Aspect expects to become a full application service provider, hosting its applications on its own server hardware.

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Quoting and Procurement Tools Forge Supply-Chain Links

Pioneered by PolyDyne Development Corp. (Austin, TX) over five years ago, automated quoting for contract manufacturers has come of age. Not only has the practice become widespread in the EMS industry, other suppliers of quoting solutions have surfaced recently. The attraction? In supply chain communications, speed is of the essence. And when bidding on contracts these days, it just takes too time to gather material prices by manual faxing. Furthermore, the rise of e-commerce on the web has opened a new channel for supply chain communications.

The Internet has given rise to new developments in quoting software. And two software companies have designed tools with features that go beyond quoting. While tools in the quoting and procurement space do not always perform the same functions, they do share one common trait — automated communications with the supply base. Without that automation, a fast-acting and flexible supply chain remains a mere pipe dream.

Here’s an overview of some software offerings to automate the quoting and procurement process in the EMS industry. Software companies appear in alphabetical order.

Digital Market Creates Supplier Extranet

To speed up and streamline sourcing and procurement, Digital Market (Sunnyvale, CA) is offering Digital Buyer, a secure supplier extranet solution based on the Internet. This tool can be used in either a CM or OEM environment.

Digital Buyer’s e-commerce engine sends quotes, orders, forecasts, schedules and contracts to all suppliers over the Internet. Take quoting. When a CM sends out RFQs with Digital Buyer, the software sends suppliers email alerting them to the RFQ. Suppliers then go to a secure web server and fill in the quote information. Digital Buyer assembles supplier quotes and returns them to the CM in a single matrix. The software allows buyers to distribute RFQs based on their criteria, sort or search quotes for analysis, and review quote history. With Digital Buyer, a user can perform a costed BOM analysis.

This tool also allows the user to aggregate material buys across the enterprise for greater purchasing leverage. Though not as powerful as a full-fledged CSM application (see article on p. 3), Digital Buyer does provide a capability for strategic sourcing.

Another feature of Digital Buyer is contract management. A module within Digital Buyer maintains a contracts database and provides a collaboration process for updating, changing and renewing contracts. For example, Digital Buyer automatically sends out alerts to commodity managers when contracts are about to expire. The software automates the request for supplier information and the supplier review.

But with Digital Buyer, communications need not begin with the buyer. The software also provides for supplier-initiated transactions. For instance, a supplier can notify a customer of a special deal, which might be new pricing for a part normally bought under contract, and Digital Buyer will automatically alert commodity managers about this opportunity as an exception. Suppliers, by the way, pay nothing to communicate through Digital Buyer.

What’s more, Digital Buyer now makes it possible for suppliers to take responsibility for electronically updating catalog information, such as price, availability and lead time, within the user’s component database. This way, suppliers avoid lots of discrete requests, while users spend no time obtaining information for quotes, costing and advanced planning.

Yet another use for Digital Buyer arises during new product introduction. Through Digital Buyer, product managers can obtain up-to-date costing and delivery information for prototypes or initial production runs as well as select appropriate suppliers.

The cost to license Digital Buyer ranges from a minimum of $100,000 to in excess of $1 million. In addition, Digital Market recently introduced its QuickStart program, by which companies can rent the software with the goal of a complete implementation in six weeks. The supplier extranet can be hosted by the customer or by Digital Market.

Contract manufacturers using Digital Buyer include Jabil Circuit, Kimball Electronics Group, Lexmark Electronics and Solectron.

PolyDyne Expands into OEM Quoting

PolyDyne has made its name in the EMS industry with its QuoteWin software for quote management. QuoteWin allows contract manufacturers to send RFQs for materials and receive quotes by web, EDI, fax or email. When suppliers send responses by web or EDI, they are automatically entered in the QuoteWin database. EDI transmissions over PolyDyne’s VAN called PolyNet can include schematics and Gerber files as well.

Reporting features allow the user to analyze quotes not only by lowest cost, but also by lead times and other variables. QuoteWin also lets the provider add labor cost and sales margins including materials markup, supplier markup, gross profit margin, nonrecurring engineering, tooling and testing. Through QuoteWin’s ProposalWizard, QuoteWin data can be loaded automatically into standard templates to generate bid proposals.

QuoteWin maintains a history of part number quotes, which can be used for such purposes as repetitive quoting for an OEM customer or cost reductions. Also, a contract negotiation tool enables a provider to obtain pricing on projected component volumes and then compare that pricing with what is available on the market.

PolyDyne has a working relationship with IQXPERT (see p. 3-4) whereby QuoteWin and IQXPERT’s CAPSXpert parts database can be offered jointly to customers.

At present, 42% of the MMI Top 50 are using QuoteWin, which has a customer base of about 60 EMS companies. Recent adopters of QuoteWin include ACT Manufacturing, Group Technologies, NatSteel Electronics, PCB Assembly, Plexus and Teradyne Connection Systems.

For parts manufacturers and distributors, PolyDyne has historically offered SupplyWin, a companion product of QuoteWin, to facilitate quote data transmission between suppliers and their contract manufacturing customers. The company is also selling a next-generation tool called SupplyWin Enterprise, which imports RFQs in virtually any format — Internet, EDI, email, spreadsheet or fax hardcopy. This tool includes reporting features such as gross margin tracking, the cost of doing business by customer, won-lost analysis, and total package value. Web access allows salespeople and product managers throughout the enterprise to see historical pricing, cost and report information.

Note that even without SupplyWin, a supplier can still communicate automatically with a QuoteWin-equipped CM via the web.

PolyDyne’s newest product is DesignWin, which can do for OEMs what QuoteWin does for CMs. DesignWin allows OEMs to automate the process of sending out assembly-level RFQs to contract manufacturers. The software also performs a more subtle function: it allows OEMs to aggregate component demand to see how that demand might affect pricing from the component manufacturer as opposed to the pricing obtained from a CM. DesignWin can also be used by new product introduction groups to estimate the cost impact of new designs. PolyDyne is working toward full supply-chain integration of DesignWin with the other quoting tools, QuoteWin and SupplyWin.

The company will stay focused on its suite of quoting products and their integration. Still, PolyDyne plans to give them purchase order capability, and QuoteWin will be able to generate POs in the near future.

TRADEC Puts Data in the Recipient’s Format

TRADEC.com (San Jose, CA) also automates the quoting process and has designed its quoting tools around the Internet. The company has developed a way to transmit quote data so that it always appears in the recipient’s format. TRADEC’s procurement solution consists of three parts.

First, PurchasingPro, which resides on the desktop of the CM’s quote manager, builds RFQs in the buyer’s format, sends them to specific distributors based on user-defined preferences, tracks distributor response, receives quotes in the buyer’s format and issues POs. While a BOM can be parceled out by franchise, which is the default setting, a CM can set up rules for RFQ grouping of line items based on other criteria such as personal relationships, service levels, contract pricing and customer relationships. New reporting features allow the CM to analyze quotes by lead times, pricing, preferred distributor status and other criteria. Quote histories are also maintained for future reference.

A second software tool, SalesPro, sits on the desktop of the distributor’s inside sales reps or account managers. This tool receives an RFQ from a CM and puts it in the distributor’s format, consistent with the supplier’s back-office systems. SalesPro automatically looks up each part number in a BOM and identifies exceptions. BOM pricing can be done automatically based on business rules set up by the distributor, and adjustments can be made across the BOM. The finished quote is returned by SalesPro, which automatically calculates revenue and profit opportunity for the quote. The software also maintains a quote log and other information such as win/loss status of each quote and customer AVLs.

Creating a virtual connection between PurchasingPro and SalesPro is InterChange, the third part of the TRADEC system. Managed by TRADEC’s servers, Interchange runs YourView technology that reformats BOM views on the fly. Interchange also provides status checking on quotes and maintains data security between trading partners and competitors. Note that suppliers can receive and send quote data without SalesPro as long as they have access to Interchange.

Rather than selling software, TRADEC is offering it on a subscription basis. PuchasingPro costs $1299 per month for three seats. The monthly rate for SalesPro is $999 per seat. Interchange carries a one-time charge of $99 per seat. CMs can try the software before buying.

About 15 CMs in the San Francisco Bay area are using PurchasingPro. They include Stanford Telecom/MQA and A-Plus Manufacturing, a Harvard Custom Manufacturing company. TRADEC plans a national rollout of PurchasingPro next year in conjunction with distributor Wyle, which now offers PurchasingPro as a valued added service to its customers. SalesPro has four beta sites, while 43 distributors have Interchange seats.

Food for Thought

Using quoting software for material pricing, CMs have speeded up the process of preparing contract bids. Automated quoting is becoming a de facto standard for the EMS industry.

But quoting tools are only as good as the information that goes into them. If a CM sends out RFQs without naming the OEM customer, a supplier may not respond with the best possible pricing. “There can be contract pricing associated with a certain design, and this can only be passed on to the CEM if they communicate the end customer information. With the automated procurement packages, this information can be lost,” says Greg Linehan, who is located in San Jose, CA, as the contract manufacturer business manager for STMicroelectronics.

Then there is the question of a supplier serving CM and OEM customers that don’t all use the same quoting software. It seems to MMI that increasingly suppliers will be required to support multiple quoting tools. Is this is a small price to pay for the speed and efficiency of automated quoting? CMs will naturally say yes. But suppliers have not had their say.

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News


Compaq Sends Server PCBA To Flextronics

Compaq has selected Flextronics International (San Jose, CA) as a key supplier of Intel-based PCB assemblies for PC servers. Flextronics will produce PC server board assemblies that are being outsourced from Compaq’s Yishun plant in Singapore. Initial production will take place in the U.S. and Mexico, with assembly in Europe expected to begin in the second half of next year. Flextronics expects this program to contribute about $400 million a year in revenue.

The EMS provider already manufactures PCB assemblies for Compaq’s commercial desktop PCs.

“We are pleased that Compaq has again chosen Flextronics, further enhancing the relationship between our two companies. Compaq’s action to outsource Intel-based PCB assemblies is evidence of the growing trend among major OEMs to utilize the extensive supply-chain management capabilities of leading EMS providers such as Flextronics International,” states Michael Marks, chairman and CEO of Flextronics.

Compaq says this arrangement will shorten its supply chain because Flextronics will be producing board assemblies on a regional basis. The computer company wants to bring PCB assemblies and supplies closer to product manufacturing facilities. This is part of Compaq’s ongoing effort to streamline its supply chain with the aim of achieving a best-in-class cost structure.

Previously, Compaq had announced in Asia that it would be outsourcing PCB assembly operations in Singapore. Wire services reported that Compaq would be cutting 1600 jobs in Singapore by March 2000. The new Flextronics program, however, does not cover all of Compaq’s PCBA operations being outsourced in Singapore. These operations also include PCBA for Compaq’s storage systems. No decision has been made regarding the storage PCBA activity.

More new progams…Ionics Circuits USA (Milpitas, CA) has begun shipping the ORBCOMM OEM satellite modem, which the company is producing for Magellan Corp. (Santa Clara, CA). Ionics Circuits USA is a unit of Ionics Circuits, a contract manufacturer based in the Philippines….Also, IXTANT, an Italian CM, will produce ORBCOMM satellite communicators for Telital, an Italian telecom company….TII Industries (Copiague, NY), a maker of surge protectors for the telecom industry, will outsource a major portion of its manufacturing. The company has begun a relationship with a U.S. privately owned CM, which operates a facility in China.

Deals done…Jabil Circuit (St. Petersburg, FL) has completed its acquisition of GET Manufacturing, a CM with much of its capacity in Southern China (see Aug., p. 4-5). The price was about $243 million paid with 5.6 million shares of Jabil common stock, and the transaction will be accounted for as a pooling of interests. Jabil also has closed its purchase of EFTC Services, a repair/warranty business, from EFTC Corp. (Denver, CO), another EMS company (July, p. 2-3). Jabil paid about $30 million in cash. Allen Braswell, former president of EFTC Services, will serve as president of the new Jabil unit called Jabil Global Services. …Through a wholly-owned subsidiary, Saturn Electronics & Engineering (Auburn Hills, MI) has completed a $10.50 tender offer for the outstanding common shares of Smartflex Systems (Tustin, CA). Smartflex, a precision CM with a flex circuit specialty, will become a wholly-owned subsidiary of Saturn, a privately-held supplier of electronic and electromechanical systems primarily for the automotive market (see July, p. 2)….Plexus (Neenah, WI) has acquired manufacturing assets and operations in Wheeling, IL, from Shure Inc., a maker of wireless microphones and personal monitor systems (July, p. 4). …The Dii Group (Niwot, CO) has reported three deals done. Its assembly and distribution division, Dovatron (Longmont, CO), has closed the purchase of Ericsson’s manufacturing and distribution assets in Kindberg, Austria (May, p. 2-3). The price was about $13 million for an operation expected to generate about $100 million in annual revenue for Dii. The distribution facility will be used as the logistics hub for Dii Europe. Dii’s PCB fabrication division, Multek, has acquired Micro Electronica Ltda., described as the only major Brazilian producer of multilayer PCBs. The purchase price was $27 million plus an earn-out provision not to exceed $9 million over six years. Dovatron plans to use management and infrastructure from this acquisition to establish an assembly and distribution operation in Brazil. Finally, Dii has sold Cencorp, which makes depaneling equipment, to PMJ automec Corp., a Finnish equipment supplier. Cencorp is one of several noncore businesses that Dii has divested this year.

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New alliances…Micro Dynamics Corp. (Eden Prairie, MN) and Sparton Corp. (Jackson, MI) have agreed to form a business alliance. This is the latest in a series of alliances that EMS provider Sparton has set up with other providers to expand its geographic coverage (July, p. 4-5). Alliance partners can tap Sparton’s resources….Agere, Inc. (Austin, TX) has selected XeTel (Austin, TX) as its board manufacturing partner for companies using Agere’s network processors.

Some financial results…For the fiscal Q4 ended Aug. 27, Solectron (Milpitas, CA) reported sales of $2.39 billion, up 41% from a year earlier. Net income increased by 59% from the year-ago quarter to $88.8 million. In fiscal 1999, revenue grew 59% to $8.39 billion, while net income rose by 48% to $293.9 million. Diluted EPS for the year increased 38% to $1.13. For fiscal 2000, Solectron expects it can deliver sales between $13 billion and $13.5 billion and EPS in the range of $1.60 before taking into account the acquisition of SMART Modular Technologies (see p. 1)….Jabil Circuit’s fiscal Q4 sales ended Aug. 31 amounted to $536.5 million, a increase of 69% over a year earlier. Net income grew 96% to $26.2 million. Fiscal 1999 revenue rose 57% to $2.00 billion, while net income increased 31% to $91.5 million. EPS went up 23% to $1.12 for the year. Jabil’s current production outlook positions fiscal 2000 for 60% revenue growth and 48% operating income growth….For the first half of 1999, Venture Manufacturing (Singapore) reported that profit climbed 66% to S$36.7 million, while sales increased 43% to S$448.4 million.

EMS company news…MCMS (Nampa, ID) is expanding into Mexico and has chosen Monterrey for the site of a new 112,000-ft2 operation. Scheduled for start-up in October, the new facility will initially focus on board assembly and test, and plans call for expansion into system assembly and order fulfillment. Volume production is slated for Q1 2000. …Manufacturers’ Services Ltd. (Concord, MA) has introduced the Time Temperature Indicator label to determine solder paste freshness. Environmental changes produce changes in label color. Labels are available through LifeLines Technology, developer of the label technology, at (973) 984-6004.

Shortages Reported

This month Solectron reported seeing higher prices, longer lead times and allocation of high-demand components, especially tantalum capacitors, SAW filters and flash memory. The company says it has not missed deliveries or commitments due to shortages, but is concerned about its ability to meet upside or surge demands. Solectron believes some buffering is going on, which would make shortages appear worse than they actually are.

Flextronics has also noticed lead times stretching out. “There have been some spot shortages that have caused some delays, but it’s not a major event,” says Flextronics CEO Michael Marks. “But we’re watching it care-fully, and we’re warning customers.”

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Copyright 1999 JBT Communications

MMI August 1999

MMI October 1999

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