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Monday, March 3, 2008

Jabil Circuits (JBL) sees weakness

This isn't current as it came out Thursday afternoon, but its worth visiting.

Jabil, speaking at the Goldman conference, indicated they were seeing a gradual stall in business, similar to the recession of '91. Things have been getting progressively slower. Display business is doing very well, but things are eroding. It's not fall of a cliff weakness like 2001, but their internal forecasts have been dropping. The company has been indicating weakness in telecom/networking for a couple of quarters now. Their customers in telecom/networking are Ericsson, Cisco, Hewlett Packard, Alcatel Lucent, Tellabs and 3Com. Obviously, these comments have contributed to the economic slowdown fears rampant in tech.

I like to pay attention to what contract manufacturers tell you about business as they're the core of the tech build (Asia tends to be a better source of this type of information as the data is more frequent and less guarded). I don't like to invest in them. I think they're glorified sweat shop, cost plus businesses that compete with less regulated overseas competitors. Furthermore, they're all big rollups. A few years ago they started buying manufacturing divisions from other companies to guarantee themselves business and to keep revenues growing. I just can't get excited about the billion dollars of business they buy from a company in exchange for a billion dollars of debt they take on. There's no shareholder value added there and I think its almost impossible to really assess the organic growth. Ultimately these wind up being unwieldy cycle bets – they're so diversified you don't get any pure play on anything, just a hodge-podge of companies and products. It's like a swap meet index – you're buying what other companies sold to the contract manufacturer. Inherently these are less attractive businesses.

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