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Cost cutting helps MSL eke out a profit
Monday, July 29 2002
by Matthew Clark


Contract electronics manufacturer Manufacturers' Services Ltd. reported a small
net profit in the second quarter amidst cost-cutting and a slowdown in business. 

The Massachusetts-based firm, which has 500 employees in Athlone and Galway, said
that net income amounted to USD238,000, or a penny per share, a major turnaround
from last year's net loss of USD7.2 million, or USD0.23 a share in the same
period. The company's cash earnings, which excluded special charges, gains, and
other exceptional items, increased by a penny year-on-year to USD0.12 a share. 



The improved figures were in part due to serious cuts in selling, general and
administrative expenses, which fell to USD14.9 million from USD31.7 million a
year earlier. Interest expenses also improved to USD2.1 million from USD5.8
million. 



Still, the firm's revenue fell to USD228 million from USD403 million a year ago,
"reflecting continued softness in end markets and changes in customer mix,"
MSL said. Importantly, the firm said that after refinancing its credit facilities
a few weeks ago, it ended the quarter with cash balances exceeding all
outstanding debt.



Looking ahead to the end of the current quarter, MSL forecast a per share Q3 cash
loss of between USD0.01 and USD0.03 on revenue of USD220 million to USD240
million. The business went on say that it planned to take a third quarter charge
of USD8 million to USD10 million to reduce excess capacity in "higher-cost
geographies" while expanding in lower-cost locations.



At this point it is unclear what areas are considered "higher-cost geographies"
or whether Irish jobs are at risk. MSL's Irish facility currently makes
medium-high mix printed circuit board and systems assembly for original equipment
manufacturers (OEMs).



Additionally, the company has manufacturing facilities in Minnesota, Illinois,
Massachusetts, North Carolina, Spain, Singapore, Malaysia and China employing
almost 3,500 people. MSL is also in the process of acquiring Lexmark
International Inc.'s electronics business unit in Reynosa, Mexico for an
undisclosed sum.



"Our solid performance in the second quarter and the momentum in our sales
pipeline show that our sharpened focus on key markets and customers led by a
strong management team is increasing MSL's competitive position," said Bob
Bradshaw, MSL's chief executive officer and president. "I am confident we will
continue that momentum to increase our revenue and earnings growth as the end
markets pick-up."



The USD100-billion-a-year contract electronics manufacturing business receives
most of its revenues from the production of high-volume, low-margin products like
mobile phones, networking products and video game systems. And in the past 10
years employment in this sector has skyrocketed as low-cost manufacturing centres
sprang up in Asia and in Europe.  



But more recently, the telecoms and high-tech slump has taken its toll on the
industry, forcing giants in the business to slash jobs and in some cases close
facilities, especially in relatively high-cost areas. Ireland has taken its share
of the burden in this regards, as firms like Celestica, Solectron, Sanmina-SCI
and Flextronics have all cut back their operations here resulting in the loss of
hundreds of jobs throughout the country. MSL itself cut more than two dozen Irish
jobs earlier this year.



Still, there have been recent bright spots for the industry of late, most notably
Goldman Sachs' decision to give Flextronics, Celestica, Sanmina-SCI and Solectron
"Market Performer" ratings, boosting their share price and injecting more
confidence into the industry.