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Flextronics, Jabil, Celestica, Others Present Business Outlooks
May 21, 2010 |Estimated reading time: 3 minutes
BOSTON — Organic growth versus mergers/acquistions? Lead times improving? How are the end markets? EMS providers Flextronics, Celestica, Jabil, and other electronics supply chain companies shared outlooks at the 7th annual Credit Suisse Electronics Supply Chain Conference in Boston in May. Following are the main points summarized by Credit Suisse analysts William Stein, CFA, and Rahul Chadha.
The tone from all presenters — component distributors, EMS providers, etc. — was decidedly upbeat, though not giddy. Booking trends are up.
Most do not see any impact from the recent macroeconomic issues in Europe. All seven presenting companies indicated the European macro-economic issues have caused no change in customer behavior with regard to order or forecasting patterns.
While the distributors see lead times as stable, EMS companies see them as increasing. The only component manufacturer presenting said lead-times were reasonable.
Component shortages abound. Most of the presenting companies are experiencing component or other supply shortages, and expect these to continue throughout the remainder of 2010. The shortages remain widespread over many product areas: passives (capacitors, resistors, etc.), memory products, metal alloys, plastic resins among many others. The only company that seems unaffected by the shortages is NATI, which claims to have anticipated the shortages early, and built component inventory before the shortages became a bigger problem. Most of the companies expect the shortage situation to resolve itself in 2011, during which component manufacturers will add capacity to meet current demand.
While the demand environment appears robust across the supply chain, and even as there are some signs of late-cycle behavior (high book/bill, shortages, and certain double-ordering), Credit Suisse believes the limited supply growth will delay any over-supply situation for at least a few more quarters.
- Flextronics International (FLEX) presenters Warren Ligan, SVP, IR & treasury and Kevin Kessel, VP, IR, stated that Flextronics prioritizes investing for organic growth, mergers and acquisitions (M&A) in niche and complimentary businesses, and share repurchases. The company suggested that demand trends in the infrastructure business may be improving. The PC business consumes nearly zero (and declining) working capital, thanks to management of the PC supply chain.
- Jabil Circuit Inc. (JBL) presenters Tim Main, president & CEO and Beth Walters, VP, communications & IR, noted that JBL’s near-term investment in Green Point will total $100 million in incremental capex, likely supporting up to $350 million in incremental annual revenue. Jabil expects 10-15% revenue growth over the next several years. The CEO noted that roughly 80-90% of the growth will be organic.
- Celestica Inc. (CLS) presenters Paul Nicoletti, CFO and Paul Carpino, VP, IR suggested that after Celestica reaches the high end of its 3.5-4.0% operating margin target, and as its non-traditional end-markets (industrial, clean tech, and aerospace) expand, it may increase the operating margin target to 4.0 - 4.5%. CLS is targeting M&A in two primary areas: aftermarket services and healthcare. Celestica also plans to expand its services business to 10% of total revenues within 3 years, and 15% of total revenues within 5 years.
- Arrow Electronics Inc. (ARW) presenter Paul Reilly, EVP & CFO, said that lead times are high but stable.
- Avnet Inc.’s (AVT) Vince Keenan, VP, IR, noted that many of AVT’s VARs want CSCO’s UCS in their product portfolio; however, the company has yet to identify material demand from end-customers for the product.
- Molex Inc. (MOLX) presenters David Johnson, CFO and Steve Martens, VP, IR reiterated the point mentioned by AVT, that lead times trended down in CQ1. Molex says that U.S. end markets are performing better than suggested. Molex’s M&A target areas include medical, RF, and backward integration into cables.
For more information, contact William Stein, CFA, 212 538 6683; william.stein@credit-suisse.com and Rahul Chadha, 212 325 7014; rahul.chadha@credit-suisse.com.
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