Monday night, Jabil Circuit reported fiscal first-quarter 2011 sales of $4.1 billion that exceeded the upper range of the company's outlook of $3.9 billion to $4 billion and beat the Wall Street estimate of $3.96 billion.
Given Jabil /zigman2/quotes/203847835/composite JBL -2.48% 's (ticker: JBL) conservative revenue outlook for the November quarter, this performance appears strong; however, the company's 6% sequential growth is still below the average uptick of 8% over the past four years.
As we suspected and discussed in our note Monday, the upside delivered by Jabil is likely to positively impact the electronic-manufacturing services (EMS) stocks in the near term, including Benchmark Electronics /zigman2/quotes/201136259/composite BHE -1.66% (BHE) (rated at Neutral), Celestica /zigman2/quotes/208427519/composite CLS -2.55% (CLS) (rated at Neutral), Flextronics International /zigman2/quotes/203929784/composite FLEX -2.32% (FLEX) (rated at Sell), Nam Tai Electronics (NTE) (rated at Neutral) and Plexus /zigman2/quotes/208217351/composite PLXS -1.23% (PLXS) (rated at Neutral).
However, the much weaker-than-expected trends in the enterprise and infrastructure market are a bit concerning and an important segment to the EMS group. Additionally, Jabil could be benefiting from company-specific trends. Netting this out, we still remain skeptical on many of the EMS stocks and would use any strength to take profits.
Revenue in the high-velocity system segment (38% of Jabil's revenue) rose by 14% sequentially versus the company's outlook of 3% growth, driven by consumer demand in areas such as smartphones.
Keep in mind, Research In Motion (RIMM) is the largest customer in this market (15% of Jabil's fiscal 2010 sales) and last week reported 19% quarter-over-quarter sales growth in the November quarter.
The diversified manufacturing services (34% of Jabil's revenue) grew by 11% sequentially, above the company's 7% growth expectation, driven by accelerating outsourcing trends in areas such as health care and renewable energy.
Essentially, we believe Jabil is benefiting from the secular trend to outsourcing in nontraditional markets.
Finally, enterprise and infrastructure (28% of revenue) declined by 8% sequentially, well below the company's expectation of 2% growth as end-market demand remains soft, as we have been highlighting. Cisco Systems /zigman2/quotes/209509471/composite CSCO -1.47% (CSCO) (rated at Buy) is the most important customer in this market and represents 15% of fiscal 2010 sales.
Looking into fiscal second-quarter 2011, Jabil expects sales of $3.85 billion to $3.95 billion, which is ahead of the consensus sales estimate of $3.695 billion.
The midpoint of the sales outlook represents a sequential decline of 4.5% and better-than-the-average sequential decline of 9% over the past four years.
Jabil expects revenue in the diversified-manufacturing-services market to grow by 2% sequentially, followed by flat trends in the enterprise and infrastructure market and a 13% decline in the high-velocity systems market due to seasonality.
-- Brian J. White
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