Circuits Assembly Online Magazine - Current Issue

News

TEMPE, AZ -- Three-Five Systems, a small-tier EMS company, today said it would review a possible sale or merger to as losses continue to mount.

reported first -quarter losses from continuing operations of $24.2 million, down from a loss of $3.8 million last year. The company posted net sales of $20.2 million for the quarter ended March 31, down from $23 million.

The total net loss, which includes discontinued operations, was $39.4 million, 
down from a loss of $6.6 million in the year-ago quarter.

The sales drop was due to significantly reduced EMS sales in the U.S., the company said, primarily from customers rescheduling orders to later in 2005.

Gross margin dollars were $2.6 million less than in the comparable quarter in 2004. Selling, general and administrative expenses rose, due to increased severance, consulting, accounting and legal expenses

During the quarter TFS took a $2.5 million loss on assets relating to ERP implementation, 
and $900,000 for costs associated with continuing lease obligations for vacated facilities. 

The company also took a $12.9 million charge for the impairment of goodwill for its EMS business 
and large panel display business in Marlborough.

Ina statement, the company said that the substantial losses sustained in the past 
several years has led to the retention of SG Cowen & Co. review strategic alternatives aimed 
at maximizing stockholder value. Based on SG Cowen's advice, the company has exited 
the display business and has signed a nonbinding letter of intent to sell its RF operations in Manila, 
leaving its EMS operations in Penang, Malaysia, and Redmond, WA. It said it is looking at several merger 
or recapitalization options. 

"Our alternatives include sale of all or part of our EMS business, merging with another company, 
recapitalization and continuation of our business, or seeking joint venture partners.

TFS guided for flat second-quarter revenue from ongoing operations. "For the remainder of 2005, our focus 
will be on cost reductions and restructuring our EMS business to achieve cash flow breakeven. We believe that 
the combination of our new product introduction and medical and military operations in Redmond with our 
high-volume, cost-effective offshore operations in Penang will provide a strong foundation for our EMS
business in the future."

At the end of the quarter TFS had cash and restricted cash of $12.4 million vs. $16.2 million 
at the end of the fourth quarter 2004.

Year-on-year, days sales outstanding rose to 46 from 38, inventory turns were flat at 5.1 and cash conversion 
cycle rose to 62 days from 58.

PALO ALTO, CA --Hewlett-Packard, one of the largest customers of the EMS industry (including companies such as Flextronics, Sanmina-SCI, Jabil, Solectron and Celestica) has faced sluggish demand and an inventory reduction, according to its latest earnings call. The company's total revenue slowed to 7% year on year vs. 10% last quarter.

According to Deutsche Bank analyst Chris Whitmore, strong (10%) sequential growth from HP's business critical servers offset slowing industry standard server revenue and a 6% decline in storage from last year. The division's operating margin improved to 4.4% vs. 1.8% last year.

HP experienced a rebound in printer demand in the April quarter, with sales up 5% year-on-year following aggressive price cuts. Home hardware sales increased 3%, while business printers grew 4% from last quarter (Flextronics has the most exposure to home hardware sales while Jabil has the most exposure to business printers, DB said).

Revenue from PCs grew 6%, decelerating sharply from last quarter's 11% growth -- as desktop growth fell to 1% from 8%. The commercial business increased 3%, with a 10% consumer growth (Sanmina-SCI manufactures commercial desktops for HP).

DB also reported that HP is selling two PC manufacturing plants to Hon Hai in Australia and India.

HP reduced inventory by $656 million and days of inventories to 35 (the lowest level since the second quarter of 2002). Roughly $500 million of the decline was in the printing division.

DB analysts noted that demand remains lackluster and pricing remains aggressive throughout the IT HW industry. In addition, HP's new management team could implement significant changes to its supply chain in an effort to drive lower costs, creating risk to EMS vendors' existing relationships with HP. That said, HP's inventory management meaningfully improved in the quarter.

Minneapolis, MN -- The Surface Mount Technology Association (SMTA) is looking for speakers to present papers and courses in China and Germany.

The first opportunity is for Nepcon Shenzhen, Aug. 30-Sept. 2. The SMTA is looking for papers related to Implementing Lead-Free (such as case studies from OEMS and CMs). The program will also focus on Lead-Free Assembly Materials and Processes.

Papers presented in Chinese are preferred. Your company must provide translation for any English submissions. Abstracts need to be emailed to joann@smta.org by May 30.

The SMTA is also soliciting workshops or courses to be presented throughout 2005 and 2006 in various cities in China. A fee and travel expenses will be provided. Courses must be taught in Mandarin (handouts can be in English). Course proposals should be submitted to joann@smta.org by June 17.

The final opportunity is for Productronica in Munich, Nov.15-18. Presentations in German are preferred. Email your abstract by June 17 to joann@smta.org.