Circuits Assembly - January 2008 - (Page 6)

Caveat Lector Sanity Returns to Sanmina he restructuring is done.” So says Sanmina-SCI president and COO Joseph Bronson. After six years of wrangling to get its operating costs in line with its revenue, the EMS company can finally face the future with a dose of confidence. In an exclusive interview with CIRCUITS ASSEMBLY in late November, Bronson, a former semiconductor executive brought on board last August, outlined the embattled EMS provider’s strategies, while firmly asserting that those who forecast the company’s impending demise are roundly wrong (the full interview is at circuitsassembly.com/cms/content/ view/5872). Some of the company’s problems can be traced to its still-questionable acquisition of SCI. That $4.5 billion, all-stock deal took place in December 2001, amid the industry’s worst recession. Although Sanmina purchased the much larger SCI – at the time, the world’s second-largest EMS company – for just 0.54 times the latter's revenues, the rationale that SCI’s massive PC business would provide ongoing internal demand for Sanmina’s bare-board products never fully materialized. (The day the deal was announced, Sanmina’s stock was trading at $23.19. Today, shares of the combined company are near their 52-week low of $1.70.) But that was long before the days of the $250 PC. As if to break with that part of its past, Sanmina-SCI now plans to sell or otherwise dispose of its PC and business computer unit within the next year. “We don’t have an end-to-end solution for PCs,” Bronson said during the interview, “so we can’t pick up margin points at each step of the process. I don’t see how we can get more cost out of [our PC operations]. We won’t have the leverage some others do.” Yet PCs make up nearly $3.2 billion of Sanmina’s annual revenues ($10.3 billion in fiscal 2007). Losing that business will almost certainly banish any hopes the company may harbor of re-attaining a place among the largest of the large EMS providers – a prospect to which Bronson seems indifferent. “The inherent value in being the largest has faded. I have this vision of all these [top-tier EMS companies] heading 90 mph, using debt to grow revenue. They’ll hit a wall. That’s not what we’re doing anymore.” Anymore. Sanmina-SCI grew mostly by acquisition throughout the late ’90s and early 2000s, and says it has learned from its past. Says Bronson: "We have to pursue markets where we can generate value T and grow margins. Eventually you can grow into a supply chain and add value. It’s better than buying a plant, and then watching the OEM send its business somewhere else.” One element of its history Sanmina-SCI isn’t shying from: defense contracts. The company has a rich tradition of supplying the U.S. government (considered a founder of the EMS sector, SCI was incorporated in 1961 as Space Craft Inc.). And while every major North American EMS supplier, save for Flextronics, is targeting that market, Bronson says a combination of the firm’s connections and its branded products has Sanmina well positioned. Most EMS companies like to press as points of differentiation their size, global reach, pricing and supply-chain management capabilities. I would argue that all the Tier 1s make those cases. For his part, Bronson sees nuances: “For some customers, the global footprint is very important, and sometimes it’s what’s best for that customer that’s important. Each EMS has locations that are unique to its customers. We try to differentiate on the basis of our engineering skill, getting to market more quickly than our competitors.” He also intimated a bigger push into the ODM side. “We’re focused on markets. We are having a lot of success in defense and aerospace, designing products for them. The medical market, the industrial equipment market. Certainly in enclosures … we have a product that’s ours and could consider selling.” A company-wide Lean initiative is helping. “We’re Leaning out a number of lines. It really enables us to save money, improve efficiency and drive throughput,” Bronson told me. Inventory turns, among the best in Sanmina-SCI’s peer group, are headed up, and the company-wide goal is 13 times – well above its competition today. Says Bronson: “The EMS business is healthy. Our margins are pretty close to the top-tier industry performance, and we believe exceed as many as six of the eight companies in the space. Our focus is on improving asset management.” Is the view worth the climb? I asked Bronson. “The company has underperformed for a long time,” says Bronson, “so it has a lot of skeptical followers waiting for the body to enter the crematorium. I don’t think that’s going to happen. If we can continue to execute, we’ll be in a good place next year.” Mike Buetow, Editor-in-Chief mbuetow@upmediagroup.com 6 Circuits Assembly JANUARY 2008 circuitsassembly.com http://circuitsassembly.com/cms/content/view/5872 http://circuitsassembly.com/cms/content/view/5872 http://circuitsassembly.com

Table of Contents Feed for the Digital Edition of Circuits Assembly - January 2008

Circuits Assembly - January 2008 Contents Caveat Lector Industry News Market Watch Talking Heads Focus on Business On the Forefront Screen Printing Better Manufacturing Walking on Water Flux Selection for Lead-Free Wave Soldering An A-to-Z Guide to X-Ray Inspection, Part II Evolution in Action Research Priorities for the Electronics Industry Selective Soldering Process Doctor Pb-Free Lessons Learned Materials World Product Spotlight Ad Index Assembly Insider Technical Abstracts

Circuits Assembly - January 2008

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