So Long, Sola

I have to say, I didn’t think Jure Sola would or could last this long. The cofounder of Sanmina, Sola was one of the poster boys for wanton M&A excess, snatching up more than a dozen companies or OEM plants during the late 1990s and early 2000s. The spree culminated in the purchase of SCI Systems in mid 2001, a $6 billion deal that saddled the company with so much debt, when the ensuring tech collapse occurred, it was forced to take 20 straight quarters of “one-time” charges.

Most execs couldn’t have survived such a bloodletting. Sola wasn’t most execs, however. He continued to place his bets on fabricating in the US — in a memorable line, he told an IPC Printed Circuit Expo audience that “plating was in his blood” — and Sanmina remains the second (or third) largest board supplier in North America. Moreover, he correctly swung to the military and aerospace markets, eschewing the PCs that SCI was so dominant in.

Today the company is half the size in revenue of its peak, but consistently profitable.

Come October Sola will ride off into the sunset with his legacy intact, perhaps not the most beloved man to run a major PCB company, but a success nonetheless. In this era, that’s no small thing.

 

Should Flextronics Be Broken Up?

The findings of a new study by Boston Consulting Group suggest that, over time, many tech companies are guilty of mission-creep, especially large ones.  And when that happens, those companies do not provide the shareholder value they could if they were leaner and more focused.

As part of its study, BCG analyzed total shareholder return, defined as the bottom-line return from capital gains and cash flow contribution. When it did so, it found little distinction between large-cap and small-cap companies:

“The clear takeaway is that regardless of company size, the more diverse the portfolio, the more difficult it is to generate high TSR—and the greater the set of management skills a company needs in order to handle that diversity. Companies must therefore be more deliberate and more explicit in rationalizing each element of their portfolio.”

BCG likens the strategy to the 3 R’s, in this case, Resize, Reform and Rejuvenate.  Marc Andreessen, the founder of Mosaic (later Netscape), put it this way: “If they’re more than 20 years old, then [companies will] probably benefit from being broken up, and many of them will probably be forced to break up if they don’t do it voluntarily.”

So for the EMS pseudo-conglomerates (Foxconn, Flextronics, Sanmina, etc.), what this means is there are arguments to be made — indeed, being made — that having bare boards, assemblies, design services, box build, ODM products, and a host of other products and services under a single umbrella is not an optimal  strategy.

There’s always been some debate over whether publicly traded EMS firms should be compared to other tech firms like Cisco and Microsoft or to traditional manufacturing companies (say, Caterpillar). It’s tough for a mid-size or larger contract manufacturer to attain repeated organic double-digit topline growth, and their margins are never going to be Wall Street pretty. Dumbing down the peer group makes sense.

But the bigger question being asked is whether their size is actually a hindrance. There must be a point at which that happens. Can the data analysis pinpoint that yet? And will market impatience make all of this moot?

 

Alder’s Quiet Retirement

In the quiet of the post-Christmas vacation break Kent Alder officially retired as CEO of TTM.

The news should be bigger than it is. It’s been years since the head of a $1 billion a year US-based PCB manufacturer stepped down. In fact, there probably have been only two: Andy Leitz, who left Hadco following its acquisition in 2000 by Sanmina, and James Mills, who was ousted from Viasystems after the tech recession in 2001.

Alder rose to prominence on the wave of the massive influx of outside investment groups that circled the industry in the late 1990s and early 2000. He was president of Pacific Circuits, a Redmond, WA-based board shop owned by Thayer Capital Partners and Brockway Moran, which then acquired Power Circuits in Santa Ana, CA, and renamed the merged entities TTM, with Alder as the head. On Alder’s watch, TTM grew from $125 million in 1999 to about $1.35 million in 2013. Along the way, TTM acquired Merix and OPC, and extending its offerings from that of a traditional regional quickturn PCB supplier to a full-service multinational production house with nearly 20,000 employees. And he did so because TTM managed to consistently do that one thing that has been so difficult for some many of its competitors: turn consistent profits.

It remains to be seen what kind of leader Tom Edman, Alder’s successor, will be. He has an impeccable resume: Yale, Wharton Business School, and 17 years of executive experience at Applied Materials before being tapped for the TTM job. He showed his chops by beating out at least one longtime internal candidate for the post.

But for now, we acknowledge Alder’s role as the preeminent PCB executive of the past decade, and wish him the best in his retirement.

5 Predictions for the Second Half

Here’s my 5 predictions for the second half of 2010.

  1. All of 2009’s 10 largest EMS companies – Foxconn, Flextronics, Jabil, Celestica Sanmina, Cal-Comp, Elcoteq, Venture, Benchmark and Plexus – will be intact at year end, and with the exception of Elcoteq, will finish 2010 in the same order.
  2. One of the mid-tier publicly traded EMS companies will be acquired, however.
  3. Component availability issues will not ease until mid 2011.
  4. Foxconn’s many employee problems will blow over as the media tires of the story.
  5. “Computer-aided innovation” will become the big buzzword in software.

Relisted

Research firm iSuppli’s Top 10 Global EMS firms list, which came out today, differs in several respects from Circuits Assembly’s findings.

Why? It may be that the iSuppli data for Foxconn take into account non-EMS related sales (the company also produces bare boards and connectors, among other things). Even so, Foxconn itself last week reported 2008 revenues of $42.3 billion.

iSuppli also excludes Cal-Comp Electronics/Kinpo Electronics from its list, despite that company’s contract manufacturing revenues of $3.2 billion last year, which would place it seventh overall.

Finally, iSuppli includes Universal Scientific in its ranking, although the Taiwanese company reports EMS sales of just $490 million in 2008.

top-10-ems-206-2012_1

Plexus Delivers, Again

Plexus this week reported December quarter revenues were flat with last year’s, which for this market counts as a huge win, as most top tier EMS firms saw revenues drop 3% or more. The world’s 10th largest EMS company also turned a net profit, making it a rarity among its large publicly traded competitors.

It’s a testament to the company’s wisdom years ago when it decided to forego chasing revenues in favor of concentrating on the higher margin medical, military and aerospace markets. That foresight, coupled with solid execution, has put Plexus at the forefront of its peer group.

All of which justifies Circuits Assembly’s selection of Plexus as its 2008 EMS Company of the Year.

As markets turn down, EMS companies historically reach for any piece of business they can get to keep factories full. This means new competition. This week, for example, Flextronics chief executive Mike McNamara said the company is “very bullish” on the medical end-market, adding “more and more outsourcing opportunities are coming out of this environment. And it is an industry that is very reasonably new in terms of outsourcing. We think that is a big upside.”

Things aren’t going to get easier in Neenah. But we think the company remains the best-positioned to survive this cold winter.