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  • astral_tsar astral_tsar May 28, 2010 6:06 PM Flag

    Big EMS Providers -- Profitability

    5-year reported earnings of some of the largest companies in the EMS space, by fiscal year.

    The point here is that Hon Hai and Nam Tai have some of the highest margins in the industry. That is a GOOD thing. I am LONG Nam Tai. I would own Hon Hai too except their stock isn't so cheap.

    Here's the data. I'd appreciate corrections, but I'm not going to respond to anything personal or off-topic. This is all publicly available info. Download the damn filings already.

    Hon Hai/Foxconn (Source: Business Week website:
    2009 earn 6263 million TWD (Taiwan dollars)
    2008 earn 6203 million
    2007 earn 9045 million
    2006 earn 6351 million
    (Obviously profitable for the 5 year period)

    Nam Tai Electronics (Source 10-K for 12/31/09, p 4, Net Income Attributable to Nam Tai shareholders)
    2009 earn 1.6 million
    2008 earn 30.6 million
    2007 earn 69.5 million
    2006 earn 40.8 million
    2005 earn 51.3 million
    (Obviously profitable for the 5 year period)

    Jabil Circuit (Source: Form 10-K for year ended 8/31/09, p 34)
    2009 loss 1165 million
    2008 earn 134 million
    2007 earn 73 million
    2006 earn 165 million
    2005 earn 204 million
    Total loss 589 million. Average loss 118 million.
    (Unprofitable for the 5-year period)

    Flextronics (Source: Form 10-K for year ended 3/31/09, p 46)
    2009 loss 6086 million USD
    2008 loss 639 million
    2007 earn 509 million
    2006 earn 141 million
    2005 earn 340 million
    Total loss 5735 million. Average loss 1137 million.
    Unprofitable for the 5-year period

    Celestica (Source: Form 20-F for year ended 12/31/09, p 2, US GAAP figures)
    2009 loss 43 million USD
    2008 loss 149 million
    2007 loss 16 million
    2006 loss 726 million
    2005 earnings 39 million
    Total loss 895 million. Average loss 179 million.
    Unprofitable for the 5-year period

    Sanmina-SCI (Source: Form 10-K for year ended 10/3/09, p 46)
    2009 loss 136 million USD
    2008 loss 486 million
    2007 loss 1135 million
    2006 loss 142 million
    2005 loss 1034 million
    Total loss 2933 million, Average loss 587 million
    Unprofitable for the 5-year period

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    • Dear astral_tsar,

      Thank You for taking the time to post this data. Just a few comments.

      Firstly Foxconn (Hon Hai) is in a space by themselves (as you state) - a clear leader in the sector with annual revenues over $50B. You should see their Shenzhen campus with 500k employees if you want to be impressed. (this compares with Nam Tai's about 5k employees in Shenzhen...clearly not in the same space)

      Nam Tai has actually historically (past couple of years the exception) had industry leading margins -> gross operating income has continually been in the 5% range which was industry leading (Only Plexus and Benchmark came close). This sectors target financial model had been - Rev 100%, GP 9% and NEBT 5% and Nam Tai until recently was there.

      My view of why this was:

      Mr. Koo partnered with a Japanese CEO (he is now gone and I don't remember his name). Together, with the advantage of cheap China labor, they did a very good job in penetrating the Japanese customer base (something that the even large EMS players could not do as the Japanese truly value relationships and Nam Tai had them). I believe this was mainly thru the connections of his partner. Even today, although they have declined much, Nam Tai's top customers are Sharp, Epson, TMD...I think they still represent over 80% of the company's revenues.

      Unfortunately the good margin days are behind Nam Tai with cheap China labor a commodity and their Japanese connections nothing of what they were (note that the Japanese CEO resigned in 2008 - not his original partner as he left much earlier) - he was very connected and I think is not now an advocate of Nam Tai).

      Nam Tai is largely in components for mobile phones that they make for their Japanese customer base. In recent years these components (intellectual property owned by the Japanese) have been coming under big fire especially from the Koreans. It is highly likely that the Japanese (specifically - Sharp, Epson and TMD) will lose share in this area (they already have been - Epson have been losing large money in this division and are considering getting out as one example). As the Japanese lose share Nam Tai will drop revenue some more. Also, the Koreans have already established manufacturing partners so this is not an option. Without this Japanese connection - Nam Tai is not competitive as per my earlier post reasons (any significant customer would go with one of the big five).

      I hope you find these comments helpful.

      • 2 Replies to xkmfx
      • xkmfx,

        Thanks very much for the response.

        On another topic. One thing that confuses me about Namtai's recent public communications lately. They seem to be saying that they want to deemphasize the "lower margin" consumer segment. Do you have any idea what that might mean? Any opinions about it? (I'm confused because CECP is the high-margin segment of the company, based on their own numbers.)

      • xkm,

        You wrote:

        "Unfortunately the good margin days are behind Nam Tai with cheap China labor a commodity and their Japanese connections nothing of what they were (note that the Japanese CEO resigned in 2008 - not his original partner as he left much earlier) - he was very connected and I think is not now an advocate of Nam Tai)."

        Your ability to look backward with 100% assurance is notable.

        In the stock market, however, that does not cut the mustard.

        It is exactly in the matter of looking forward that I disagree with your conclusions which really are rooted in the past.

        If you feel so strongly about NTE's lack of future outlook, why in the world are you not short the stock?

        Please answer this question.

        Thank you specsit.

        I am long NTE.

    • So plainly Nam Tai is not one of the big 5 in the space. I threw it in there in a bid for relevance to this board.