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Market analysis

Based on first-half results of 20 of the largest contract manufacturers, revenue increased by 3% in 2014 compared to a decrease in revenue of 7% in 2013, reflecting a moderate turnaround from the previous year. This reversal came as a result of strong demand for tablets, servers, notebooks (desktops went into decline) and smartphones. In addition, resurgence from traditional industries, such as medical, industrial, and transportation, also acted as a demand driver.

The number of M&A deals in the EMS sector increased in 2014 year over year. This can be attributed to the growing opportunities in Europe—specifically Central and Eastern Europe. Backed by higher than average transaction valuations, 2014 appears to be a year of consolidation for the industry as failing EMS companies offered good value for the money. VirTex Enterprises (TX) enlarged its geographic footprint by acquiring MTI Electronics. Hunter Technology Corp (CA) acquired Spectral Response and thereby doubled its footprint, and tripled its SMT capacity. Silicon Turnkey Solutions purchased the assets of Bay Area EMS bolstering its current product line-up, and further solidifying its position in turnkey manufacturing. Varitron Group acquired Altronics Manufacturing.1

Arrow Electronics reported Q3’14 net income of US$146.9mn and EPS of US$1.47 per share on a diluted basis, compared with net income of US$96.8mn and EPS of US$.95 per share on a diluted basis in Q3’13. Q3’14 sales of US$5.61bn increased 11% from sales of US$5.1bn in Q3’13. Sales, as adjusted, increased 6% year over year. The implementation of a sales-related initiative led to strong growth in the Global Components and Enterprise Computing Solutions segments. Arrow was able to return approximately US$50mn to shareholders through its stock repurchase program in the third quarter.

Flextronics’ Q3’14 net sales were US$6.5bn. Q3’14 adjusted operating income increased 16% year over year to US$183mn. Consistent improvement in execution helped across many areas of the business, including operating margins, which improved for the sixth consecutive quarter. The company delivered strong cash flow of US$387mn and free cash flow of US$322mn during the quarter. Additionally, Flextronics repurchased another 9.3 million shares during the quarter for US$101mn.

  1. mfgmkt.com

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