Mr. Miscioscia: We focus on our company's customers, or the OEMs, such as IBM, Dell, HP, Cisco and Lucent. With this we add field trips to Asia, Europe and Mexico, the main production locations for electronics companies. All these inputs, combined with our evaluation of management, strategies and execution, channel checks, etc, leads to our investment conclusions on Celestica (CLS), Flextronics (FLEX), Jabil Circuit (JBL), Solectron (SLR), Sanmina-SCI (SANM) and, in the mid-tier space, Plexus (PLXS), Pemstar (PMTR) and SMTC (SMTX).
TWST: Keith, what do you focus your coverage on?
Mr. Dunne: We look at the industry a little differently than Lou. Since
the mid-1990s, we have viewed the industry as an ideal vehicle to better
understand the entire supply chain across a broad range of technology
products. Consequently, we actually define the Electronic Manufacturing
Products and Services (EMPS) industry to include not only the service
providers commonly known as the EMS industry, but also related product
companies such as TTM Technologies (TTMI) and DDi Corp. (DDIC), which
actually fabricate the green substrates or printed wiring boards (PWB)
used to interconnect semiconductors into a finished product. Early on,
we saw a lot of synergies from covering products and service companies
given that they are both integral partners in the supply chain, serving
the same end customers, and are subject to the same macroeconomic
trends. In addition, we also anticipated some acquisition activity of
product companies as EMS companies looked to expand their offerings.
Today, we believe the EMS industry has continued to evolve into two
basic business models. First, there are virtual EMS providers such as
Benchmark Electronics (BHE), Celestica, Jabil Circuit, Manufacturers'
Services (MSV) and Plexus that focus only on services. These companies
help OEMs with product design, procuring parts, building subassemblies
and finished goods, testing, and logistics. In contrast, vertical
companies are providing these services but have also brought the
manufacturing of certain components in-house, including printed circuit
boards, metal enclosures, plastic molding and extrusions, and cable
assemblies. Vertical EMS providers would include Flextronics, Sanmina
and Solectron. I'm sure we'll talk about the differences of virtual
versus vertical models later, but let me just say that vertical models
generally have more execution risk and are affected more by the economic
cycle, wheras virtual models typically generate more stable margins and
returns on invested capital and are less capital intensive. In summary,
we look at the EMS industry as a critical, 100 billion part of the
supply chain that is continuing to grow in importance as OEMs seek more
efficient and cost-effective methods to get electronic equipment to
market.
Tickers included in this excerpt: ARW, AVT, BHE, CLS, DDIC, EMPS, FLEX, JBL, KEM, MOLX, MONI, MSV, PLXS, PMTR, PWB, SANM, SLR, SMTX, TTMI, VSGI, VSH
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