EMS Industry – Stocks Reflect Seasonality and...
Transcript of EMS Industry – Stocks Reflect Seasonality and...
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2003 New Year Preview IEEE CPMT SCV Chapter Meeting
For pertinent disclosure, please see disclosures at end of report.
EMS Industry – Stocks Reflect Seasonality and … Better Times?
June 11, 2003
J. Keith Dunne
(415) 633-8543
1J. Keith Dunne Phone: (415) 633-8543 [email protected]
Agenda
I. Electronic Manufacturing Services Overview
II. EMS Industry Continues To Evolve
III. Industry And Demand Indicators
IV. Stock Market Considerations
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2003 New Year Preview IEEE CPMT SCV Chapter Meeting
2J. Keith Dunne Phone: (415) 633-8543 [email protected]
I. Electronic Manufacturing Services (EMS) Overview
3J. Keith Dunne Phone: (415) 633-8543 [email protected]
Executive Summary
• Optimistic comments not yet reflected in orders from core customers, yet new wins should shine through.
• Outsourcing trends should continue; it makes financial sense.
• Counter-Cyclical Cash Flows lead to stronger balance sheets.
• Virtual EMS business models provide more downside protection.
• Valuations: Seasonal surge pushes stocks to short-term trading highs.
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4J. Keith Dunne Phone: (415) 633-8543 [email protected]
Vertical EMS Stocks Stocks Surge in Anticipation; Long-Term Virtual Stocks Outperform
Short-Term Risk of Profit-Taking; Long-term Potential Remains
a. All indices are market-cap weighted. b. Includes PLXS, FLEX,JBL, SANM, SLR, CLS, BHE, PMTR, SMTX, MSV c. Includes FLEX, PMTR, SANM, SLR, and SMTX d. Includes BHE, CLS, JBL, MSV, and PLXS e. Not usedf. Includes COMS, ALA, CSCO, ERICY, LU, MOT, NOK , DELL, GTW, HPQ, IBM, SUNW BRCD, CIEN, CORV, EMC, EMLX, EXTR, FDRY, JNPR, ONIS,
QLGC, RBAK, SFA, SCMR, TLAB, AMCC, BRCM, JDSU, VTSS, and PMCS
Note: EMS stocks typically underperform NASDAQ in first quarter, by average of 11% in the past six years.
Source:Factset, Reuters, Company Reports and RBC Capital Markets estimates.
Market 6/4/2003 Calendar Year- CAGRCap. YTD 2002 2001 2000 1999 97-02
Electronic Manufacturing Services (EMS)Virtual EMS Providers-d $9,541 18.9% -48.1% -16.9% -8.6% 167.1% 23.1%Vertical EMS Providers-c $12,839 33.8% -68.6% -44.9% 1.1% 92.2% 3.2% EMS Providers-b $22,380 27.0% -61.7% -39.1% 3.9% 100.5% 7.9%
Original Equipment Manufacturers (OEMs) Composite OEM Index-f $692,306 27.8% -55.8% -48.9% -28.7% 129.4% -2.8%
S&P 500 12.1% -23.4% -13.0% -10.1% 19.5% 2.9%NASDAQ 22.4% -31.5% -21.1% -39.3% 85.6% 0.6%Dow Jones Industrial Average 8.4% -16.8% -7.1% -6.2% 25.2% 4.4%
5J. Keith Dunne Phone: (415) 633-8543 [email protected]
Outsourcing Is Key To Long-Term Growth
Pricing/Terms For OEM Divestitures Have Improved Significantly:• Price to sales multiples at 10%-20%, down from 30%-40%;
• Terms and conditions reduce EMS risk; and
• More flexibility to move programs and/or close plants at OEM cost.
Source: IPC, Micro-Tech Consultants and RBC Capital Markets estimates.
a. Estimated growth reflects unit growth adjusted for anticipated price degradation.
Market Size ($bil.) Long-Term % OutsourcedU.S. World Growth-a Now in 3-5 Yrs
Electronic Mfg Services $20-25 $95-105 10-20% 13-17% 20-30% Original Design Mfg Services $0-4 $30-40 10-20% 4-8% 10-15%
Total $20-$30 $125-$145 10-20% 17-23% 30-45%
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II. EMS Industry Continues To Evolve
7J. Keith Dunne Phone: (415) 633-8543 [email protected]
EMS EPS Lagged in Downturn, May Lead in Upturn; Valuations are Better
Key Differences In Virtual EMS versus OEM Business Models:• Lower fixed cost structure• Increased outsourcing and industry consolidations• Minimal technology obsolescence risk• Limited balance sheet risk (inventory & A/R)• Counter-cyclical cash flows
(a) Average CY04 P/E is 21.2x excluding PlexusPrices as of 6/4/03. OEM earnings estimates as of 6/4/03.Note: P/Es greater than 99x are treated as 99x. Outliers in CY04:3Source: First Call, Reuters, Company reports and RBC Capital Markets Estimates
(a)
Total # of CompaniesAvg. P/E Number of with Losses %
EPS Decline CY04E Companies in CY2003E w/ LossesEMSVirtual -29% 28.5x 5 1 20%Vertical -52% 19.2x 5 2 40%Total EMS -52% 27.4x 10 3 30%
OEMs by Sector:OEM Avg./Total -80% 41.5x 47 19 40%
Median CY01
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EMS Sales Should Grow 3-4x End Markets As …
Source: 2001-2002E per Gartner 9/02 Electronic Manufacturing Services Forecast, 2003-2006E RBC Capital Markets Estimate
CAGR 03E-O6E
6.5%
4.0%
15.3%
14.4%
EMS Revenues versus OEM COGs
0100200300400500600700800900
2001 2002E 2003E 2004E 2005E 2006E
Bill
ions
($)
EMS ODM OEMs
31 4033
515 525 513
543 563 577
49 54 62
94 85 99 116 133 148
640 643 652707
750787
% OutsourcedEMSODMTotal
200115%5%
20%
2002E13%5%
18%
2003E15%6%
21%
2004E16%7%
23%
2005E18%7%
25%
2006E19%8%
27%
9J. Keith Dunne Phone: (415) 633-8543 [email protected]
… Outsourcing Spreads To More Markets and …
a. ODM Sales are mostly to PC, notebook, peripheral, and handset markets.
Source: RBC Capital Markets Estimates-
(a)Projected Outsourcing Penetration Rates
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
2003E 11.3% 4.6% 33.3% 7.3% 13.0% 38.5% 34.5% 33.7% 27.1%
2006E 14.0% 10.6% 36.6% 13.1% 15.8% 45.8% 40.5% 41.3% 37.1%
Aerospace Automotive Computer Systems Consumer Medical/Ind. Network
Equipment Peripherals Wired Comm. Wireless Comm.
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… Production Shifts To Lower Cost Locations
Source: Company Reports and RBC Capital Markets Estimates
Sales ($ in billions)
North &
South A
merica
% of Total
Industry Sales by Continent
-
2.0
4.0
6.0
8.0
10.0
12.0M
ar-0
1
Jun-
01
Sep
-01
Dec
-01
Mar
-02
Jun-
02
Sep
-02
Dec
-02
Mar
-03E
Jun-
03E
Sep
-03E
Dec
-03E
0%10%
20%30%
40%50%60%
70%80%
90%100%
Europe North & South America Asia % from N/S. America
11J. Keith Dunne Phone: (415) 633-8543 [email protected]
Differences In Two Emerging Business Models …
Vertical EMS Business Models• One-stop shop - advantageous for high volume/low-cost applications
• Ownership of supply chain
• Greater revenue and mass scale
• Product revenues offer greater operating leverage
Virtual EMS Business Models• Greater focus on core competencies/less obsolescence risk
• Impartial sourcing decisions
• More sustainable margins, greater cash flows, less volatile ROICs
• Lower capital requirements
• Lower risk profile
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… Reflected In Financial Performance
a. Based on tax-affected operating income adjusted to exclude non-recurring charges.
Source: Company Reports and RBC Capital Markets Estimates
Virtual: Lower Fixed Costs/Less Acquisition Integration
Virtual Vertical TotalSales (CY02) $15,482 $37,269 $52,751CY02 EBIAT Margin 3.1% 0.6% 1.4%CY03E EBIAT Margin 2.0% 1.6% 1.7%
Free Cash Flow (1Q99-1Q03E) $1,721 $486 $2,207Net Debt/(Cash) Capital -28% 21% -6%
Goodwill Chgs. $384 $5,812 $6,196Rest/Other Chgs. $1,225 $4,126 $5,351Charges as % of Sales (CY00-03E) 2% 6% 5%
Median 2003 ROIC-a 8.8% 2.9% 3.1%
13J. Keith Dunne Phone: (415) 633-8543 [email protected]
Both EMS Models Serve Similar Customers …
FLEX PMTR SANM SLR BHE-a CLS JBL MSV PLXSCalendar Period Q103 Q103 Q103 Q103 Q103 Q103 Q103 Q103 Q103Customer/CompanyTop Customer 12% 19% 20-25%E 12% 45-50%E 13-15%E 15-20%E 31% 15%Top 5 40-45E% 47% 45-50E% Near 45E% 66% 53% 50-55E% 64% 40-45E%Top 10 62% 64% 67% 57% 80-85E% 78% 71% 85% 54%Agilent <5%EAlcatel Near 5E% 5-10%E <5%E 5-10%EApple Near 5%ECasio Near 5%Ciena 5-10E%Cisco 10% 5-10%E 15-20%EDell Near 5E% 5-10%E Near 5E%Echostar <5%EEMC 10-15%E <5%EEmerson Near 5E%Emulex 5-10%EEricsson Near 5% <5%E 5-10%EEricsson-Sony 12%Extreme Networks Near 5%GE 5-10%EHewlett Packard 10% Near 10E% 12% 5-10%E Near 10E% 14%Honeywell <5%E Near 5E%IBM 19% 20-25%E 5-10%E 13-15%E 31%Intel Near 5E%Juniper 5-10%EKodak <5%ELexmark Near 5E%Lucent Near 5%E <5%E 10-15%E 5-10%EMedtronic 5-10%EMicrosoft Near 5E%Motorola Near 5E% 8-10E% 5-10%ENEC < 5%E 5-10%ENokia <5%E <5%E Near 5E%Nortel Near 5E% 11%Oce 5-10%EPatient Line Near 5E%Philips 15-20%E <5E%Rockwell 5-10%EShure <5%ESiemens 5-10%E 15%Sun Microsystems < 5%E 45-50%E 10-15%EUnisys 5-10%EUS Army <5E%Valeo 5-10%EXerox 5-10%EOther Top 10 Customers Fluke Hitachi Abbot Labs Avaya JCI Radisys Intermec
Logitech McData Samsung J & J EthiconProxim NMSQlogic
Seagate
Vertical Virtual
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… and End Markets
Market Segment FLEX PMTR SANM SLR BHE CLS JBL MSV PLXSSimple
Avg.Weighted
Avg.
Calendar Period Q103 Q103 Q103 Q103 Q103 Q103 Q103 Q103 Q103
Communications 25% 35% 29% 52% 14% 47% 39% 17% 33% 32% 36%
PCs/Notebooks 26% 36% 32% 16% 8% 36% 11% 18% 19%
Peripherals 20% 8% 26% 6% 6%
Servers/Storage 5% 23% 63% 36% 16% 16% 13%
Industrial/Instruments 17% 12% 3% 14% 6% 17% 16% 9% 5%
Medical 7% 9% 2% 33% 6% 1%
Consumer 42% 5% 3% 21% 8% 14%
Other 7% 0% 0% 6% 0% 9% 10% 2% 7% 5% 5%
CLS: Communications includes Telecommunications (23%) and Enterprise (24%); Servers/Storage includes Servers (22%) and Storage (14%)
FLEX: Consumer includes hand-held devices (29%), PDAs and Other consumer (13%). PCs includes office equipment.
MSV: PCs is mostly point-of sale terminals for IBM. Medical is in Ind/Instr.
SLR: Communications(networking: (24%), non-mobile (19%), mobile: (10%)). Peripheral includes workstations, mainframes, and transportation
JBL: Communications include 25% networking and 14% communications equipment
Vertical VirtualEMS Providers
15J. Keith Dunne Phone: (415) 633-8543 [email protected]
EMS vs. ODM (Original Design Manufacturers)
EMS• Little Product/IP Risk
• Build to Order
• Global
• Flexible Volumes of More Complex Assemblies
• Limited Inventory Risk
• Greater Purchasing Power
• Broad Product Markets
• Low Concentration (Top 10 60-85%)
Design Engineering
Customers/Markets
ODM• Own IP
• Build to Spec
• Asian
• High Volume Commodities
• Inventory Risk (White Box Buffer)
• Faster Inventory Turns
• Mostly PC/Notebook/ Peripherals
• Top Customer can Exceed 50%
Geography
Assembly
Note: Leading ODMs ranked by 2001 sales: Hon Hai, Quanta Computer, Asustek, Compal Electronics, First International Computer, Wistron, Inventec, BenQ, Arima Computer
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Current State Of Convergence
Desktop PC Peripherals
Notebook
PrimaryCompetitive Arena
Low-End Servers
Cell Phone
High-End Server Work-stations
Core Telecom Equip-ment
EMS
ODM
Product ComplexitySource: RBC Capital Markets
PDA
Routers
17J. Keith Dunne Phone: (415) 633-8543 [email protected]
Reward/Challenges Of Combining EMS And ODM
EMS• Expand Design and Engineering
Talent to Lower Life Cycle Cost and Accelerate Time to Market
• Opportunity to Retain Mature, High-Volume Business
• Expand Low-Cost Assembly and Material Procurement Relations
• Pricing Expanded R&D Services
• Developing Library of Standard Designs that Don’t Violate OEMs IP
• Limited Precedent Leaves Untested Waters Regarding Structure
Rewards
Challenges
ODM• Access High-End Process
Technologies
• Penetrate non-PC/Peripheral OEMs
• Expand Global Footprint to Increase Market Opportunity
• Increased Complexity of High-Tech High Mix Programs
• Greater Emphasis on Quality vs. Cost
• “Open-Book,” Systems-Linked Integration with Customers is Culturally Different/Expensive
Source: RBC Capital Markets
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III. Industry And Demand Indicators
19J. Keith Dunne Phone: (415) 633-8543 [email protected]
Initial Signs That Market Bottom Is Near
• EMS inventory days are near historic trough
• OEM vs. EMS sales indicate end of inventory correction cycle
• Improving PWB order trends stalled in April, May is a little better
• Cost structures are preparing for tepid growth
• Balance sheets have improved
• Reduce costs/shift to lower cost production
• Increase sales and marketing efforts
• Selectively pursue OEM asset divestitures
Our View
Potential Strategies
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Trough Inventory Days Supported By …
Note: Data reflects industry actual from 1Q90 – 1Q03
Source: Company Reports and RBC Capital Markets estimates
vs.3/01 Peak, Inventories Fell 57% For EMS And 52% For OEMs
Inventory
Inventory Days
Sales
Ele ctr on ic M anu factu r ing Se r vice Pro vid e r s
0
5000
10000
15000
20000
25000
Dec
-95
Jun-
96
Dec
-96
Jun-
97
Dec
-97
Jun-
98
Dec
-98
Jun-
99
Dec
-99
Jun-
00
Dec
-00
Jun-
01
Dec
-01
Jun-
02
Dec
-02
June
-03E
Dec
-03E
Mill
ions
0
10
20
30
40
50
60
70
80
Inve
ntor
y D
ays
(Wei
ghte
d A
vg)
Inventory Days
Sales
Inventory
21J. Keith Dunne Phone: (415) 633-8543 [email protected]
… Sequential Sales Analysis
EMS production could lead OEMs in upturn, though estimates are more conservative
Note: OEM Data as of 6/4/03
Source: IPC, Reuters, FactSet, and Company Reports
Sep-00A Dec-00A Mar-01A Jun-01A Sep-01A Dec-01A Mar-02AActual ResultsEMS Core Sales Growth 15.2% 8.1% -16.3% -16.8% -14.8% -8.1% -14.0%Composite OEM Sales Growth 2.8% 8.3% -16.8% -10.2% -6.3% 2.3% -12.2%Variance ( EMS vs OEMs) 12.4% -0.2% 0.5% -6.6% -8.5% -10.5% -1.8%Inventory Adj. Index (vs 12/98) 1.55 1.55 1.55 1.45 1.33 1.19 1.17
Jun-02A Sep-02A Dec-02A Mar-03A Jun-03E Sep-03E Dec-03EForecasted ResultsEMS Core Sales Growth -1.8% -2.6% -0.3% -13.5% -0.1% 4.1% 6.4%Composite OEM Sales Growth 2.8% -3.5% 12.2% -10.1% 1.9% 4.5% 8.6%Variance ( EMS vs OEMs) -4.6% 1.0% -12.5% -3.4% -2.0% -0.4% -2.2%Inventory Adj. Index 1.11 1.13 0.98 0.95 0.93 0.93 0.91
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2003E Sales Reflect 2H03 Sequential Gains Assuming …
Source: Company Reports and RBC Capital Markets estimates
Sales in 000s
C2002A C2003E C2004E C2002A C2003E C2004E 2001A C2002A C2003E C2004E C2001A C2002A C2003E C2004EBHE $1,630 $1,800 $2,025 28% 10% 13% 0% 8% 8% 0% -25% 20% 3% 13%CLS $8,272 $6,660 $7,600 -17% -19% 14% 14% 23% 1% 0% -11% -40% -21% 14%FLEX $13,615 $13,460 $15,650 5% -1% 16% 30% 26% 4% 0% -14% -20% -5% 16%JBL $3,837 $5,163 $5,482 -3% 35% 6% 5% 17% 41% 0% -9% -20% -6% 6%MSV $854 $785 $930 -44% -8% 18% 16% 1% 2% 0% -29% -45% -10% 18%PMTR $647 $674 $748 -7% 4% 11% 11% 5% 0% 0% 12% -12% 4% 11%PLXS $889 $794 $910 -10% -11% 15% 18% 14% 0% 0% -5% -24% -11% 15%SANM $10,168 $10,638 $11,825 104% 5% 11% 43% 152% 18% 2% -41% -48% -13% 9%SMTX $569 $425 $485 -7% -25% 14% 9% 0% 0% 0% -34% -7% -25% 14%SLR $12,208 $11,333 $11,742 -20% -7% 4% 28% 16% 1% 0% -38% -37% -8% 4%
Avg Vertical (w/SCI) $37,208 $36,530 $40,449Avg Virtual $15,481 $15,202 $16,947
Wghtd Avg./Total $52,690 $51,731 $57,396 -9% -2% 11% 20% 29% 8% 0% -26% -38% -10% 10%
Annual Percentage Change in SalesTotal Sales Total Sales Acquisitions (Est.) Core Sales (est.)
23J. Keith Dunne Phone: (415) 633-8543 [email protected]
… PWB Orders Recover from April
Source: IPC, US Department of Commerce, and RBC Capital Markets Estimates
PWB 3/12 Orders (Thru 4/03) vs Electronic Equipment 3/12 Orders (Thru 4/03)
0.4
0.6
0.8
1
1.2
1.4
1.6
Jan-
96
Apr-
96
Jul-9
6
Oct
-96
Jan-
97
Apr-
97
Jul-9
7
Oct
-97
Jan-
98
Apr-
98
Jul-9
8
Oct
-98
Jan-
99
Apr-
99
Jul-9
9
Oct
-99
Jan-
00
Apr-
00
Jul-0
0
Oct
-00
Jan-
01
Apr-
01
Jul-0
1
Oct
-01
Jan-
02
Apr-
02
Jul-0
2
Oct
-02
Jan-
03
Apr-
03
3/12 Average PWB Booking Grow th Rate
Electronic Equip 3/12 Order Grow th Rate
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24J. Keith Dunne Phone: (415) 633-8543 [email protected]
Orders Typically Improve During 2nd Quarter
Note: Orders Booked data is based on average sequential change in orders from1995-2002
Source: IPC and RBC Capital Markets Estimates
PWB Seasonality AnalysisAverage Monthly Data Since Jan. 1994
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Seq
uent
ial P
erce
nt C
hang
e
0.90
0.92
0.94
0.96
0.98
1.00
1.02
1.04
1.06
PW
B B
ook-
to-B
ill R
atio
Orders Booked
94-02 Avg
03 Bk-to-Bl
25J. Keith Dunne Phone: (415) 633-8543 [email protected]
IV. Stock Market Considerations
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26J. Keith Dunne Phone: (415) 633-8543 [email protected]
A Stronger Book-to-Bill Would Be Positive
Prices as of 6/04/03. PWB Data through April 2003. Correlation Coefficient 53% vs. 80% in CY98-00.
Sources: IPC, Reuters, Factset and Company Reports
PWB Book-to-B
ill
EM
S S
tock Index
3 Mo. Avg. PWB Book-To-Bill Ratio ( Thru 4/03; Leads by 3 months)vs.
% Change EMS Stocks (Indexed to 12/95 )
0.50
0.55
0.60
0.65
0.70
0.75
0.80
0.85
0.90
0.95
1.00
1.05
1.10
1.15
1.20
1.25
1.30
Jan-
96
Apr
-96
Jul-9
6
Oct
-96
Jan-
97
Apr
-97
Jul-9
7
Oct
-97
Jan-
98
Apr
-98
Jul-9
8
Oct
-98
Jan-
99
Apr
-99
Jul-9
9
Oct
-99
Jan-
00
Apr
-00
Jul-0
0
Oct
-00
Jan-
01
Apr
-01
Jul-0
1
Oct
-01
Jan-
02
Apr
-02
Jul-0
2
Oct
-02
Jan-
03
Apr
-03
Jul-0
3E
-100%
0%
100%
200%
300%
400%
500%
600%
700%
800%
900%
1000%
1100%
1200%
1300%
1400%
PWB Book to Bill
EMS Stock Prices
27J. Keith Dunne Phone: (415) 633-8543 [email protected]
Seasonally Strong 2nd Quarter Boosts EMS Stocks
Note: Market Cap Weighted Returns
Sources: Company Reports and FactSet
Stock Price Returns - EMS Providers vs NASDAQ Composite
-40%
-20%
0%
20%
40%
60%
80%
Q1 Q2 Q3 Q4 Year
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
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28J. Keith Dunne Phone: (415) 633-8543 [email protected]
Valuations (EV/EBITDA) Improve but Below Average
Why EV/EBITDA:
• Correlates with ROIC
• Key to acquisition analysis
• More reliable than P/Es
Includes CLS, FLEX, JBL, SANM, and SLRPrices as of 6/04/03Source: Reuters, FactSet, and Company Reports.
EV
/EB
ITDA
Electronics Manufacturing Service Providers - Tier OneEnterprise Value/12-Month-Forward EBITDA Multiples
0
5
10
15
20
25
30
Jan-
98
Mar
-98
May
-98
Jul-9
8
Sep
-98
Nov
-98
Jan-
99
Mar
-99
May
-99
Jul-9
9
Sep
-99
Nov
-99
Jan-
00
Mar
-00
May
-00
Jul-0
0
Sep
-00
Nov
-00
Jan-
01
Mar
-01
May
-01
Jul-0
1
Sep
-01
Nov
-01
Jan-
02
Mar
-02
May
-02
Jul-0
2
Sep
-02
Nov
-02
Jan-
03
Mar
-03
May
-03
Jul-0
3E
Tier One 12-month Median
Tier One EV/EBITDAaverage
29J. Keith Dunne Phone: (415) 633-8543 [email protected]
Matrix Of EV/EBITDA May Provide Insight
Prices as of 6/4/03
Source: Company Reports and RBC Capital Markets Estimates
JBL
PLXSCLS
PLXS
ROIC vs. EV/CY04E EBITDA
-5.0%
0.0%
5.0%
10.0%
15.0%
3 5 7 9 11
EV/CY04E EBITDA
12-M
onth
For
war
d R
OIC
ROIC vs. EV/CY04E EBITDA
PLXS
BHE
FLEX
MSV
PMTR
SLRSANM
CLS
JBL
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30J. Keith Dunne Phone: (415) 633-8543 [email protected]
P/E Valuations Surge, But Have Been Less Helpful
Source: FactSet, First Call, Reuters, Company Reports, and RBC Capital Markets Estimates
* Includes Celestica, Flextronics, Jabil, and Sanmina-SCI. Based on Consensus Forward First Call GAAP Estimates. Prices as of 6/04/03.
Note: Forward P/E ratios greater than 50 treated as 50
Tier 1 EMS Providers Forward Looking P/E Ratios
5
10
15
20
25
30
35
40
45Ja
n-98
Mar
-98
May
-98
Jul-9
8
Sep-
98
Nov
-98
Jan-
99
Mar
-99
May
-99
Jul-9
9
Sep-
99
Nov
-99
Jan-
00
Mar
-00
May
-00
Jul-0
0
Sep-
00
Nov
-00
Jan-
01
Mar
-01
May
-01
Jul-0
1
Sep-
01
Nov
-01
Jan-
02
Mar
-02
May
-02
Jul-0
2
Sep-
02
Nov
-02
Jan-
03
Mar
-03
May
-03
Abs
olut
e P/
E
Tier 1 Absolute P/E
Tier 1 EMS 12M Avg.
31J. Keith Dunne Phone: (415) 633-8543 [email protected]
Tangible Book Provides Some Protection, Though …
Note: TBV has been changed to reflect $9-$10M in restructuring and operating losses estimated for 2Q and 3Q:03E.
Source: Reuters, Company Reports, and RBC Capital Markets estimates
Virtual EMS: Net Cash, Less Restructuring, Fewer Acquisitions
6/4/03Ticker Company Price TBV Gross TangibleNet (Debt)
Cash/ShareEMS Providers:BHE Benchmark Electronics $29.86 16.57$ 1.4x 1.8x $7.84CLS Celestica $16.00 9.56$ 1.1x 1.7x $4.50FLEX Flextronics Intl $11.56 4.52$ 1.3x 2.6x ($1.32)JBL Jabil Circuit $22.20 6.13$ 2.8x 3.6x $0.17MSV Manufacturers Srvs Ltd. $4.91 2.87$ 1.6x 1.7x $0.43PMTR Pemstar, Inc. $3.50 3.37$ 0.8x 1.0x ($1.59)PLXS Plexus $13.45 8.33$ 1.5x 1.6x $2.05SANM Sanmina-SCI $6.50 2.38$ 1.0x 2.7x ($2.07)SLR Solectron $4.05 2.95$ 0.7x 1.4x ($1.65)
PRODUCT BASED COMPANIES:
PWB Manufacturers:MERX Merix $7.06 8.55$ 0.8x 0.8x $1.39TTMI TTM Technologies, Inc. $4.50 2.27$ 1.1x 2.0x $0.35
Total EMPS Industry 1.3x 1.9xEMS Companies 1.4x 2.0xVertical EMS 1.0x 1.9xVirtual EMS 1.7x 2.1x
PWB Companies 0.9x 1.4x
Price to Book
0J.
Kei
th D
unne
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e: (4
15) 6
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543
keith
.dun
ne@
rbcc
m.c
om
Com
para
ble
Valu
atio
n M
etric
sCa
lEV
/EV
/Pr
ice /
MRQ
Net D
ebt
Price
YTD
2002
Mark
etLT
M20
03E
CY0
3EC
Y04E
Book
/ Boo
kFi
scal
Tick
erCo
mpa
nyRa
ting
Risk
06/04
/03%
Chg
% C
hgCa
pSa
les20
02A
2003
E20
04E
2003
E20
04E
ROIC
EBIT
DAEB
ITDA
Equi
tyNe
t Cap
.M/
EEM
S Pr
ovid
ers:
PLXS
Plex
usSP
AA$1
3.45
53%
-67%
$568
$848
$0.17
($0.2
8)$0
.15NM
58.1
-3.2
%40
.1
10
.71.4
8-2
9.2%
Sep
JBL
Jabil
Circ
uitO
AA$2
2.20
24%
-21%
$4,40
3$4
,053
$0.46
$0.71
$1.00
27.5
20.7
10.5
%11
.4
9.4
2.84
-2.2%
Aug
CLS
Celes
tica
OAA
$16.0
013
%-6
5%$3
,632
$7,70
7$0
.88$0
.05$0
.4532
0.035
.60.
6%15
.1
9.5
0.90
-33.7
%De
cFL
EXFle
xtron
ics In
tl SP
AA$1
1.56
41%
-66%
$6,00
3$1
3,379
$0.61
$0.31
$0.35
38.7
23.1
5.0%
10.8
8.91.3
213
.1%Ma
rSA
NMSa
nmina
-SCI
OAA
$6.50
45%
-77%
$3,31
3$1
0,200
$0.08
$0.06
$0.23
72.2
24.1
2.9%
11.1
8.1
0.9
723
.7%Se
pSL
RSo
lectro
nSP
AA$4
.0514
%-6
9%$3
,352
$12,1
04($
0.11)
($0.0
5)$0
.10NM
NM1.
3%11
.8
7.
5
0.72
22.8%
Aug
PMTR
Pems
tar, In
c.UP
Spec
$3.50
55%
-81%
$131
$668
($0.4
1)($
0.56)
$0.01
NMNM
-0.1
%7.
8
5.8
0.8
224
.2%Ma
rBH
EBe
nchm
ark E
lectro
nics
SPAA
$29.8
64%
51%
$732
$1,74
9$1
.51$1
.75$2
.0517
.114
.612
.6%
5.8
5.
1
1.40
-58.1
%De
cMS
VMa
nufac
turer
s Srvs
Ltd.
SPAA
$4.91
-11%
-11%
$164
$800
$0.27
$0.12
$0.35
40.9
14.0
8.8%
5.8
4.
0
1.57
-15.9
%De
c
PROD
UCT
BASE
D CO
MPAN
IES:
PWB
Manu
fact
urer
s:ME
RXMe
rixUP
AA$7
.06-1
6%-5
1%$1
03$9
4($
0.73)
($0.8
7)($
0.72)
NMNM
-12.
5%N
M60
4.6
0.83
-19.5
%Ma
yTT
MITT
M Te
chno
logies
, Inc.
OAA
$4.50
36%
-67%
$179
$105
($0.0
2)$0
.07$0
.2564
.318
.01.
9%13
.7
7.
0
1.07
-9.0%
Dec
Tota
l Elec
troni
c Man
ufac
turin
g Pr
oduc
ts an
d Se
rvice
s Ind
ustry
:23
%-4
6%$2
,053
$4,70
183
.026
.0
2.5%
13.4
61.9
1.26
-7.6%
E
MS C
ompa
nies
:26
%-4
8%$2
,478
$5,72
386
.127
.2
4.3%
13.3
7.71.3
4
-6
.2%
A
vera
ges La
rge C
ap E
MS:M
kt. C
ap.>
$2,00
027
%-6
0%$4
,141
$9,48
991
.720
.74.1
%12
.08.7
1.35
4.7%
Small
Cap
EMS
: Mkt.
Cap
. >$1
0015
%-9
%$4
88$1
,133
19.3
28.9
6.1%
17.3
6.61.4
8-3
4.4%
Vertic
al EM
S (F
LEX,
PMT
R, S
ANM,
SLR
, SMT
X)39
%-6
4%$3
,200
$9,08
827
.711
.82.3
%10
.47.6
0.96
20.9%
Virtu
al EM
S (B
HE, C
LS, J
BL, M
SV, P
LXS)
17%
-23%
$1,90
0$3
,032
81.1
28.6
5.9%
15.7
7.71.6
4-2
7.8%
Pro
duct
Bas
ed C
ompa
nies
P
WB
Comp
anies
:10
%-5
9%$1
41$9
964
.318
.0-5
.3%13
.730
5.80.9
5-1
4.2%
GS
PCS&
P 50
098
6.212
%-2
3%C
OM
P.Q
NAS
DAQ
16
34.7
22%
-32%
SOX
Phild
elphia
Sem
i Inde
x39
4.036
%-4
5%
a. W
ith th
e ex
cept
ion
of S
LR w
hich
is G
AAP
EPS;
all
othe
r com
pani
es E
PS a
re c
ash
EPS
whi
ch e
xclu
des
amor
tizat
ion
expe
nse
and
non-
recu
rrin
g ch
arge
s.
Ratin
gs/R
isk: T
P=To
p retu
rns w
ithin
secto
r, O=
Retu
rns o
utper
form
secto
r, SP
=Retu
rns i
n line
with
secto
r, U:
Retu
rns b
elow
secto
r. N
R=No
t rate
d. Av
g.=Av
erag
e sec
tor vo
latilit
y, ris
k, re
venu
e and
/or E
PS pr
edict
abilit
y, no
cash
flow
and/o
r fina
ncing
conc
er
A
A: A
bove
aver
age r
isk pa
rame
ters,
Spec
: Risk
is co
nsist
ent w
ith ve
nture
capit
al, lo
w flo
at, ba
lance
shee
t con
cern
s and
/or ris
k of d
elisti
ng.
Sour
ce: C
ompa
ny re
ports
, Firs
t Call
and R
BC C
apita
l Mar
kets
estim
ates.St
ock P
rices
FY C
ash
EPS-
a A
djus
ted
CY C
ash
P/E
17
2003 New Year Preview IEEE CPMT SCV Chapter Meeting
32J. Keith Dunne Phone: (415) 633-8543 [email protected]
… Volatility Remains
Monthly Valuations Fluctuate >15% more than 50% of the Time
Prices Through 6/04/03
Sources: Reuters
EMS Stock Price Monthly Returns
-50%-40%-30%-20%-10%
0%10%20%30%40%50%
Jan-
97M
ar-9
7M
ay-9
7Ju
l-97
Sep
-97
Nov
-97
Jan-
98M
ar-9
8M
ay-9
8Ju
l-98
Sep
-98
Nov
-98
Jan-
99M
ar-9
9M
ay-9
9Ju
l-99
Sep
-99
Nov
-99
Jan-
00M
ar-0
0M
ay-0
0Ju
l-00
Sep
-00
Nov
-00
Jan-
01M
ar-0
1M
ay-0
1Ju
l-01
Sep
-01
Nov
-01
Jan-
02M
ar-0
2M
ay-0
2Ju
l-02
Sep
-02
Nov
-02
Jan-
03M
ar-0
3M
ay-0
3
33J. Keith Dunne Phone: (415) 633-8543 [email protected]
Disclosure
Analyst CertificationAll of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all of the subject securities or issuers. No part of the compensation of the responsible analyst(s) named herein is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the responsible analyst(s) in this report.
RBC Dominion Securities Inc. makes a market in the securities of Celestica Inc. and may act as principal with regard to sales or purchases of this security. The securities of Celestica Inc. discussed in this report are subordinate voting shares. The author(s) of this report has received (or will receive) compensation based in part upon the investment banking revenues of RBC Capital Markets (including RBC Dain Rauscher, RBC Dominion Securities Inc., and RBC Dominion Securities Corp. or their affiliates). RBC Dain Rauscher Inc. makes a market in the securities of Flextronics International Ltd. and may act as principal with regard to sales or purchases of this security. RBC Dain Rauscher Inc. makes a market in the securities of Merix Corporation and may act as principal with regard to sales or purchases of this security. RBC Dain Rauscher Inc. makes a market in the securities of Plexus Corp. and may act as principal with regard to sales or purchases of this security. RBC Dain Rauscher Inc. makes a market in the securities of PEMSTAR Inc. and may act as principal with regard to sales or purchases of this security. A member company of RBC Capital Markets or one of its affiliates managed or co-managed a public offering of securities for Sanmina-SCI Corporation in the past 12 months. RBC Dain Rauscher Inc. makes a market in the securities of Sanmina-SCI Corporation and may act as principal with regard to sales or purchases of this security. RBC Dain Rauscher Inc. makes a market in the securities of TTM Technologies, Inc. and may act as principal with regard to sales or purchases of this security. The author is employed by RBC Dain Rauscher Inc., a securities broker-dealer with principal offices located in Minnesota, USA.
Data points are not adjusted for stock splits/dividends.
NASD/NYSE rules require member firms to assign all rated stocks to one of three rating categories--Buy, Hold/Neutral, or Sell--regardless of a firm's own rating categories. Although RBCCM does not consider all stocks that its analysts rate as Sector Perform to be equivalent to a Hold/Neutral rating, for purposes of this ratings distribution disclosure, RBCCM automatically treats stocks rated Sector Perform as Hold/Neutral.
In the event that this is a compendium report (covers more than six subject companies) RBC Capital Markets (RBC CM) may choose to provide specific disclosures for the subject companies by reference. To access these disclosures, clients should refer to http://rbc2.bluematrix.com/bluematrix/Disclosure or send a request to RBC CM Research Publishing, 60 South 6th Street, Mail Stop P16, Minneapolis, Minnesota 55402.
18
2003 New Year Preview IEEE CPMT SCV Chapter Meeting
34J. Keith Dunne Phone: (415) 633-8543 [email protected]
Explanation Of RBCCM Rating System
Definitions Of Rating Categories
An analyst's sector is the universe of companies for which the analyst provides research coverage. Accordingly, the rating assigned to a particular stock represents the analyst's view of how that stock will perform over the next 12 months relative to the analyst's sector, but does not attempt to provide the analyst's view of how the stock will perform relative to: (i) all companies that may actually exist in the company's sector, or (ii) any broader market index.
Ratings:Top Pick (TP): Represents analyst's best ideas in Outperform category; expected to significantly outperform sector over 12 months; provides best risk-reward ratio; approximately 10% of analyst's recommendations.
Outperform (O): Expected to materially outperform sector average over 12 months.
Sector Perform (SP): Returns expected to be in line with sector average over 12 months.
Underperform (U): Returns expected to be materially below sector average over 12 months.
Definitions Of Risk Qualifiers
Average Risk (Avg): Volatility and risk expected to be comparable to sector; average revenue and earnings predictability; no significant cash flow/financing concerns over coming 12-24 months; and/or fairly liquid.
Above Average Risk (AA): Volatility and risk expected to be above sector; below average revenue and earnings predictability; may not be suitable for a significant class of individual equity investors; may have negative cash flow; and/or low market cap or float.
Speculative (Spec): Risk consistent with venture capital; low public float; potential balance sheet concerns; and/or risk of being delisted.
Our Research Ratings Legend can be viewed at http://www.rbccmresearch.com/researchratings.
References to a Recommended List in the recommendation history chart may include one or more recommended lists or model portfolios maintained by a member company of RBC Capital Markets or one of its affiliates. RBC Capital Markets recommended lists include the Strategy Focus List and the Fundamental Equity Weightings (FEW) portfolios. RBC Dain Rauscher Inc. recommended lists include the Western Region Focus List (1), the Model Utility Portfolio (2), and the Prime Opportunity List (3) (formerly called the Private Client Selects), Private Client Prime Portfolio (4), a former list called Private Client Portfolio (5), and the Prime Income List (6). RL On: Date a security was placed on a recommended list; RL Off: Date a security was removed from a recommended list.
35J. Keith Dunne Phone: (415) 633-8543 [email protected]
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