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Investor Alert

March 17, 2011, 3:00 p.m. EDT

One Electronics Manufacturer to Buy Now

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Ticonderoga Securities

Sanmina-SCI lowered second-quarter outlook on defense, India and optical.

Thursday morning, Sanmina-SCI /zigman2/quotes/207312436/composite SANM -0.17% (ticker: SANM) negatively preannounced its second-quarter fiscal 2011 results due to weakness in the defense market, a labor strike in India and softness in optical.

Essentially, Sanmina-SCI now expects second-quarter fiscal 2011 sales of $1.56 billion to $1.60 billion versus previous expectations of $1.62 billion to $1.67 billion and Wall Street's estimate of $1.65 billion.

Pro forma earnings per share for second-quarter fiscal 2011 is now expected at 28 cents to 32 cents versus the company's original outlook of 40 cents to 43 cents and the Street projection of 41 cents.

The defense market was the biggest contributor of weakness in the March quarter, while the strike in India and optical programs also disappointed.

Sanmina-SCI indicated that defense spending has "slowed dramatically" as the company stopped getting new orders due to Federal budget uncertainty.

In our tech-supply-chain universe, Amphenol /zigman2/quotes/207999687/composite APH -0.98% (APH) (rated at Buy) has the highest exposure to the military and aerospace market at 22% of fourth-quarter 2010 sales and could also experience similar challenges in this market.

Regarding Japan, Sanmina-SCI has yet to see an impact; however, we continue to remain concerned with the implications for the tech supply chain and original-equipment manufacturers (OEMs).

For example, we believe Flextronics International /zigman2/quotes/203929784/composite FLEX -1.52% (FLEX) (rated at Sell), Molex (MOLX) (rated at Neutral) and Nam Tai Electronics (NTE) (rated at Neutral) are most at risk in our tech supply chain universe.

This morning, Lenovo [of Hong Kong] indicated in a Reuters [a division of Thomson Reuters (TRI)] article that it does not expect much of an impact from Japan in the short term but is more concerned with how the June quarter could be impacted due in part to battery supplies. Lenovo was a top-10 customer for Flextronics in fiscal year 2010.

Also, Hitachi (HIT) announced damage at its main production base in the Ibaraki Prefecture across several businesses, including Hitachi Displays, which focuses on small-form-factor LCD displays.

Also, a Reuters article mentioned that Toshiba [of Japan] announced plans to close a small-form-factor LCD assembly display plant near Tokyo that focuses on the smartphone market.

We continue to believe the electronics-manufacturing-services (EMS) stocks are fighting a decelerating sales cycle, a lower margin expansion opportunity and the risk of approaching peak profit levels.

Historically, the EMS stocks have followed the peaks and troughs in the sales cycle; thus, fighting a decelerating sales cycle has not been a profitable endeavor. In light of Sanmina-SCI's shortfall, the EMS group could come under pressure.

Our EMS universe consists of Benchmark Electronics /zigman2/quotes/201136259/composite BHE -1.91% (BHE) (rated at Neutral), Celestica /zigman2/quotes/208427519/composite CLS -0.93% (CLS) (rated at Buy), Flextronics, Nam Tai and Plexus /zigman2/quotes/208217351/composite PLXS -0.65% (PLXS) (rated at Neutral). However, we remain aggressive buyers of Celestica at current levels.

-- Brian J. White

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/zigman2/quotes/207312436/composite
US : U.S.: Nasdaq
$ 40.66
-0.07 -0.17%
Volume: 377,047
July 1, 2022 4:00p
P/E Ratio
9.46
Dividend Yield
N/A
Market Cap
$2.47 billion
Rev. per Employee
$199,159
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/zigman2/quotes/207999687/composite
US : U.S.: NYSE
$ 63.75
-0.63 -0.98%
Volume: 1.94M
July 1, 2022 4:00p
P/E Ratio
23.65
Dividend Yield
1.25%
Market Cap
$38.07 billion
Rev. per Employee
$127,234
loading...
/zigman2/quotes/203929784/composite
US : U.S.: Nasdaq
$ 14.25
-0.22 -1.52%
Volume: 2.32M
July 1, 2022 4:00p
P/E Ratio
7.32
Dividend Yield
N/A
Market Cap
$6.52 billion
Rev. per Employee
$150,833
loading...
/zigman2/quotes/201136259/composite
US : U.S.: NYSE
$ 22.13
-0.43 -1.91%
Volume: 190,237
July 1, 2022 4:00p
P/E Ratio
20.30
Dividend Yield
2.98%
Market Cap
$777.49 million
Rev. per Employee
$218,870
loading...
/zigman2/quotes/208427519/composite
US : U.S.: NYSE
$ 9.63
-0.09 -0.93%
Volume: 329,376
July 1, 2022 4:00p
P/E Ratio
10.50
Dividend Yield
N/A
Market Cap
$1.20 billion
Rev. per Employee
$249,496
loading...
/zigman2/quotes/208217351/composite
US : U.S.: Nasdaq
$ 77.99
-0.51 -0.65%
Volume: 124,005
July 1, 2022 4:00p
P/E Ratio
20.15
Dividend Yield
N/A
Market Cap
$2.16 billion
Rev. per Employee
$175,198
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