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TWST: Keith, to what extent could it be said that as these companies have become more capable of increasingly complex manufacturing and have added services, they have, in fact, enabled the increase in outsourcing to take place?

Mr. Dunne: There is no question in my mind that that is exactly what’s taking place. Right now, the market is a bit over $100 billion annually, just looking at the electronics manufacturing services sector, and if you include the product-based groups — printed wiring boards (PWBs) and power supplies — the market totals closer to $175 billion. In 1997, we held an EMS summit where the CEOs and/or CFOs of the six largest companies came together to discuss the industry. Basically, we all came to the conclusion that 60% to 70% of the electronics manufacturing industry could be outsourced long term. We have not changed our viewpoint. Currently, we estimate printed wire boards are 95% to 100% outsourced, while power supplies are over 70% outsourced. So we believe there is clear precedent for the EMS industry to significantly increase outsourcing levels beyond the current 15%-20% level. One of the biggest challenges to increasing outsourcing levels is the level of trust, that EMS providers can perform without divulging important trade secrets.

TWST: Keith, what’s your view?

Mr. Dunne: I do think the industry is moving from a communications to a more collaborative business model. What that means is adding linked information systems and tools that not only help EMS and OEM companies track inventory, but also to do more real-time demand and procurement analysis. In fact, if you were to look at past cycles, there are indications that the industry is performing somewhat better given the sharpness of the current downturn. One way to assess that is to look at printed wire board demand versus underlying electronic equipment orders. The last time there was a disconnect was in early 1995 when demand for printed wiring boards (PWBs) was going through the roof just as underlying electronic equipment orders were falling off. At least in the most recent cycle, PWBs and equipment orders both trended up together and the overhang is not as great as it was back in 1995. Additionally, PWB demand has fallen off much more sharply relative to equipment demand, which should lead to an earlier correction in PWB demand. So the industry is already making some improvements.

TWST: Keith, what are your favorite stocks at this point?

Mr. Dunne: Clearly, there’s going to be some overlap here, but I’m starting my recommendation process by looking for good management teams that are focused on their particular strategy, which is supported by a strong marketing organization that’s aggressively going after the kinds of business that fit their operating metrics, ideally targeting the higher technology spectrums of the marketplace with a strong balance sheet to fund internal growth and opportunistic outsourcing and/or acquisitions that may occur. This framework leads me to several companies. Celestica (NYSE:CLS) has been mentioned by most of the panel and I agree. And to that point, another company that recently reduced estimates, but has a bright future is Plexus (Nasdaq:PLXS). Unlike a lot of the other companies that started out as assemblers and that are looking to add design skills, Plexus started out as more of a design company that has since added assembly operations. Pound for pound, I believe Plexus has the best engineering and design capabilities in the industry.