October 18, 2004
Engineering Manufacturing Service (EMS)
Please note that contributed articles, blog entries, and comments posted on EDACafe.com are the views and opinion of the author and do not necessarily represent the views and opinions of the management and staff of Internet Business Systems and its subsidiary web-sites.
Jack Horgan - Contributing Editor


by Jack Horgan - Contributing Editor
Posted anew every four weeks or so, the EDA WEEKLY delivers to its readers information concerning the latest happenings in the EDA industry, covering vendors, products, finances and new developments. Frequently, feature articles on selected public or private EDA companies are presented. Brought to you by EDACafe.com. If we miss a story or subject that you feel deserves to be included, or you just want to suggest a future topic, please contact us! Questions? Feedback? Click here. Thank you!


Flextronics


Flextronics International Ltd. was incorporated in the Republic of Singapore in May 1990. The company is the top EMS provider, with revenues of $14.5 billion in fiscal year 2004 and over 12.5 million manufacturing square feet in 29 countries across five continents.


Customers, include Alcatel SA, Casio Computer Co., Ltd., Dell Computer Corporation, Ericsson Telecom AB, Hewlett-Packard Company, Microsoft Corporation, Motorola, Inc., Siemens AG, Sony-Ericsson, Telia Companies, and Xerox Corporation. The ten largest customers accounted for approximately 64% and 67% of net sales in fiscal year 2004 and fiscal year 2003, respectively. The largest customers during fiscal year 2004 were Hewlett-Packard and Sony-Ericsson, each accounting for approximately 12% of net sales.


Table 2 Flextronics Financial Performance



Table 3 Geographic Breakdown of Flextronic's Revenue



Figure 2 Flextronics Market Segmentation


On June 8th Flextronics announced an agreement whereby they would acquire 55% of Hughes Software Systems, a provider of software products and services to telecom infrastructure companies. At the end of June Flextronics announced a four-year manufacturing agreement, whereby it will assume most of Nortel Networks' systems integration activities, final assembly, testing and repair operations, along with the management of the related supply chain and suppliers. Flextronics' revenues from Nortel Networks should reach an annual revenue rate of approximately $2.5 billion.


As for their future Flextronics says:
“We have recently begun providing ODM services, where we design and develop products that we then manufacture for OEM customers. We are actively pursuing ODM projects, focusing primarily on consumer related devices, such as cellular phones and related products, which requires that we make investments in research and development, technology licensing, test and tooling equipment, patent applications, facility expansion, and recruitment.”

Solectron


Solectron was established in 1977 and began by manufacturing solar energy products. The name Solectron is a combination of "solar" and "electronics. In 1991 the firm had only a single manufacturing location. Today the company spans five continents and has facilities in more than 15 countries. It owns or leases more than 13 million sqft of manufacturing space. Revenues from continuing operations for fiscal year 2004 were US$11.64 billion. Selectron is organized into four business units, namely Global Operations, Technology Solutions, Global Services and MicroSystems. Global Operations provides customers with pre-manufacturing, manufacturing, materials management and fulfillment
services for printed circuit boards, backplanes, system enclosures and complete electronic products. In fiscal 2003, Global Operations generated sales from continuing operations of $8.8 billion, or 79.7% of total net sales, as compared to $10.1 billion and $17.1 billion in fiscal years 2002 and 2001, respectively. In Fiscal 2003 Tech Solutions was 12.1%, Global Services 6% and MicroSystems 2.2% of revenue.


As shown in the table below revenues decreased from $18.6 billion in 2001 to $11.0 billion in 2003. Solectron attributes this sales decline primarily to continued weakness in customer demand, particularly in the telecommunications and networking segments, resulting from the worldwide economic slowdown that significantly impacted the electronics industry. The decreases were partially offset by revenues from their acquisitions completed in fiscal 2002, including C-MAC Industries, Inc.


Table 4 Solectron Financial Performance


International locations contributed 64% of consolidated net sales in fiscal 2003, compared 53% in fiscal 2001. This increase has been primarily due to project transfers from sites in the United States to lower cost regions. According to Solectron:
“We have shifted our manufacturing capacity to lower-cost locations over the past few years - Mexico, Eastern Europe and, particularly, Asia. This reflects our belief that OEM customers will be driven by the cost advantages associated with these locations, among other factors, in the coming years. As of August 31, 2003, approximately 70% of our manufacturing capacity in terms of headcount and equipment, and 50% of our manufacturing capacity in terms of square footage, were in these low-cost regions.“
This is shown clearly in the table below.


Table 5 Geographic Breakdown of Solectron's Revenue




Figure 3 Solectron Market Segmentation


In the last three fiscal years the top three customers (HP, Nortel Networks and Cisco Systems) combined accounted for more than 1/3 of the company revenue and individually for slightly more than 10%. The top ten customers accounted for 61% of net sales in fiscal 2003, 68% of net sales in fiscal 2002 and 72% of net sales in fiscal 2001.


Solectron continues to remain optimistic about the growth opportunities in the EMS
Industry. The firm currently projects revenue growth to be between 12% and 16% in 2005.


Solectron is a major advocate for employing Lean Six Sigma in both design and manufacturing. The company is also pushing collaborative design rather than ODM services. With collaborative design Solectron and the customer share IP and work together to design products for cost and production considerations, starting with the earliest stages of design.




Sanmina-SCI


Sanmina-SCI was incorporated in Delaware in May 1989 by acquiring its predecessor company, which had been in the printed circuit board and backplane business since 1980. In December 2001, the company merged with SCI and formally changed its name to Sanmina-SCI Corporation. The company is headquartered in San Jose, CA.

Table 6 Sanmina-SCI Financial Performance


During the last four reported quarters the company had revenue of $11.6 billion and a net loss of $102 million. The company generates slightly more than a quarter of its revenue domestically (United States). The continued shift toward international operations has resulted from overseas acquisitions and a desire on the part of many of their customers to move production to lower cost locations in regions such as Asia, Latin America and Eastern Europe.


Sales to the firm's ten largest customers accounted for 68.5% of fiscal 2003 net sales and 65.8% of fiscal 2002 net sales. For fiscal 2003, the two largest customers, IBM and HP, accounted for approximately 28.8% and 9.6%, respectively, of net sales.


In January 2003, the company entered into an agreement with IBM under which IBM agreed to outsource the manufacturing of a portion of its low and midrange servers, workstations and ThinkPad notebooks to Sanmina-SCI and in turn the company agreed to acquire IBM's related manufacturing facilities in Greenock, Scotland and Guadalajara, Mexico. The transaction closed in February 2003 for a cash purchase price of $173.8 million. During fiscal 2003, the company also completed several other acquisitions that were immaterial individually and in the aggregate for an aggregate purchase price of $49.9 million, including a manufacturer of high-end complex medical systems and other high-end industrial
products, a wireless communication equipment assembly facility and a developer of enterprise-class servers. In 2002 the company entered into divestiture agreements with HP and Alcatel.


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-- Jack Horgan, EDACafe.com Contributing Editor.


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