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TWST: As you look at the space at this point, what are the key issues in
the EMS area?
Mr. Golomb: The big trend now is the focus on revenue growth. A firm's
revenue growth will depend on which segments of the EMS industry it is
targeting. Companies such as Benchmark (BHE), Jabil (JBL), Nam Tai (NTE)
and Plexus (PLXS) are better positioned for growth right now because a
larger portion of their revenues are from fast growing segments such as
consumer electronics, enterprise, or the non-core EMS medical, military,
and industrial industries. Flextronics (FLEX) is another company that is
well positioned for growth in the next year or so, as 30% of its revenue
is from handheld communication devices. Firms that experienced declining
revenues in 2005, such as Celestica (CLS), Sanmina (SANM), and Solectron
(SLR), are working to return to revenue growth and are taking great
efforts to tap these growing markets. EMS firms are also offering
services that will allow them to capture a greater portion of customers'
outsourcing needs. Besides offering traditional EMS services, such as
computer or telecom manufacturing, they are adding pre-manufacturing
services such as product design, component manufacturing services, and
post-manufacturing services such as warranty repair, or end-of-life
management, with hopes of capturing a larger portion of the outsourcing
trend. More OEMs such as IBM, Hewlett-Packard or even GE Medical are
realizing the benefits of outsourcing more manufacturing to EMS firms
and are looking at this outsourcing opportunity in a different way than
they have in the past. They realize outsourcing production can lower
product costs and improve time to market. EMS companies are also taking
notice of this trend and are working very diligently to capture this
growth. So I think you are going to continue to see better growth in
2006 relative to 2005, though it will favor companies such as Jabil,
Benchmark, Plexus or Nam Tai, who are already established in these
areas. But I also believe you will see improving trends for companies
that have struggled in the past. They have completed the bulk of their
restructuring programs and have initiated Six Sigma and Lean initiatives
programs, which has improved their manufacturing capabilities and has
made these firms competitive with the stronger firms.
Tickers included in this excerpt: BHE, CLS, FLEX, JBL, NTE, ODM, PLXS, SANM, SLR, VARI
For more information call (212) 952 7433. The
Wall Street Transcript does not endorse any of the comments made by interviewees, and does
not make stock recommendations.
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