Jabil is fuming, says a Tampa area columnist, but taking the allegations of worker abuse in China seriously.
Tag Archives: Jabil
Jabil’s Turn in the Hot Seat
You can forgive — if only slightly — Terry Gou if he is smiling today.
One of the chairman of Foxconn’s main competitors, Jabil, stands accused today of creating and maintaining a what can best be described as a cruel environment for its 6,000-some workers in Guangzhou.
While no suicides have been reported — unlike the dozen at Foxconn’s Shenzhen plant this year alone — the accusations, by the very official-sounding National Labor Committee, a US-based NGO, are damning.
In a less-than-stellar initial response, Jabil took issue with the report’s summary, saying , “A quick look over this lengthy summary, written by a ‘respected Chinese worker rights activist and scholar, who must remain anonymous,’ paints a very accusatory but not very accurate picture.” Jabil’s response is too cute by half: the full report was authored by NLC director Charles Kernaghan, based on undercover investigations in China. Only the three-paragraph preface, per the report, is credited to the anonymous Chinese scholar.
Regardless of whether the charges are warranted, Jabil will certainly have to answer for itself. For the workers’ sake, let’s hope they are exaggerated. But if they aren’t, Jabil faces the same disdain the world holds for the likes of Terry Guo — and deservedly so.
Add Ons
Now that the worst of the financial meltdown is (hopefully) behind us, one of the trends to watch will be how quickly EMS companies expand capacity.
Plexus, which has always been conservative in its approach, said this week it would first consider adding to its Penang, Malaysia, base, which is currently its largest campus, as well as alternatives in China and possibly Thailand. It said its next investment in Europe would likely be in Oradea, Romania, where the company already has two sites and feels “a more permanent location in very close proximity” would be in order.
Celestica, on the other hand, said it is looking to acquire fairly modest-sized health-care businesses, but hasn’t indicated plans to add capacity.
Flextronics and Jabil appear more set on building up manufacturing capabilities for alternative energy products. Foxconn, of course, looks like it might invest just about anywhere.
Unrest in Mexico
Did you know the vast majority of workers at some major Mexico-based EMS companies are, in fact, contractors?
Reporting by Corporate Watch says the bulk of workers at plants owned by Foxconn, Flextronics, Jabil and others are, in fact, temps.
Here’s a quote regarding one (fairly recent) study:
A 2007 Cereal study found that approximately 60 percent of the 400,000 workers in Mexico’s electronics industry work for temporary agencies, with some companies employing as much as 90 percent of their workforce through sub-contractors.
The reason I bring this up is because most of these companies also are members of the EICC, a group of leading electronics companies that, among other things, have signed on to a “Code of Conduct” governing how they would treat workers, including temps. Yet that hasn’t stopped street demonstrations in Guadalajara, where a small group of workers has argued in favor of better employment conditions and severance payments.
I’m not willing to blow this out of proportion. But as a nation that aspires to be the benchmark for the world, we must take care to ensure our standards are consistent in all lands in which we work, not just our own.
Santa Anna’s Revenge
We continue to see greater emphasis on Mexico as a preferred sourcing spot by North American OEMs, and thus a preferred locale for volume production by major EMS companies.
The latest proof: According to a recent article, Jabil expects to boost employment at its factory in Zapopan to more than 9,000, up 136% from October 2008. According to an industry source, Jabil has moved all but six SMT lines from its St. Petersburg, FL, headquarters to Mexico as it ramps its capacity south of the border.
And Sanmina-SCI projects 10 to 20% growth in sales over last year, prompting plans to invest $7 million to $10 million in new machinery.
Call it Santa Anna’s revenge.
No Main Point
Check out this exchange from Jabil’s recent quarterly conference call:
Alexander Blanton (Ingalls & Snyder analyst): Okay, second question is you mentioned earlier the possibility that some manufacturers initially might decide to move some things in-house. Do you have any examples of that in your business?
Timothy L. Main (Jabil CEO): I think the one that’s been well-publicized is the Nokia announcement three, four months ago. … Other than that, we don’t have any significant customer accounts that [inaudible] that type of move.
Blanton: Because recently NCR announced that they would in-source some ATM manufacturing and as I can determine, the reason they are doing that is so they can get some tax incentives from the State of Georgia that require a certain number of jobs to be created in the State of Georgia. And it really has nothing to do with the economics actually of in-sourcing. But there was some comment accompanying that in some of the local press that oh, there’s a trend toward in-sourcing. But from what you can tell, is there any such thing?
Main: I don’t think there’s any such thing. I might have mentioned NCR but I’m glad you brought it up. I forgot that that was a public statement that they made, so — you know, these OEMs will have certain drivers, different personalities, and opportunities like NCR has to receive significant tax benefits for an activity that maybe they think can be supported domestically within their own site. [If you take] a couple of data points, a $1 trillion dollar industry and say that’s a trend, I don’t think so.
Blanton: Yes, well, there was a bill in the State of Georgia that if you can create 1800 jobs or more, you can get some tax incentives. Well, the only way they could do that was to in-source this ATM manufacturing because they didn’t have enough people coming from Dayton to meet the 1800 bogey. This is not the way the press presented it but it’s obviously the case, so it had really nothing to do with lowering costs or anything like that.
Main: Right, well, the politics that we are in today are going to really be very negative towards outsourcing and that type of thing. I mean, that’s — let’s just accept that but recognize that the trend to out-source and the cost benefit of out-sourcing are so compelling that these temporary political statements I think will impact the temporary and the broader economic force of what compels OEMs to do what they do will prevail.
Blanton: Well, you are absolutely right. The CEO of NCR bragged that oh, we’re bringing jobs back from overseas when in reality, they are coming from South Carolina.
Egged on by a so-called analyst, Main essentially discounted any trend toward insourcing. But both men completely ignored the recent decision by Alcatel-Lucent to insource an estimated $2 billion worth of assembly. And it misses Ericsson’s announced purchase of certain Elcoteq operations. Moreover, it dismisses the role governments play not just in convincing OEMs to locate operations in their jurisdictions, but EMS companies as well.
In fact, just last year, the state of Florida, along with various local governments, granted almost $35 million in tax incentives to keep Jabil in St. Petersburg. How, exactly, is that any different than what Georgia is doing for NCR?
If Main has a point, it must be hidden under his hat.
Blue Sun
IBM’s potential merger with Sun is hardly a done deal, and reporters at The Wall Street Journal and elsewhere now think the deal may be off. (For the record, neither OEM has yet commented on the deal.)
Which, for EMS companies, is probably just as well. Deutsche Bank estimates a merged IBM-Sun would be able to cut as much as $1 billion in costs from the bottom line. Some of that, no doubt, would come from deleting redundant product lines and even greater buying leverage with the companies’ respective suppliers.
Sales to Big Blue make up about 10% of the revenues at Celestica, Benchmark and Sanmina-SCI, five to 10% of Jabil’s revenue, and two to five percent of Flextronics’ sales. Several of those companies supply significant volumes to Sun as well.
Faced with the pullbacks of Nokia and Alcatel-Lucent, which took some $6 billion combined out of the EMS industry’s collective pockets, word that a deal is off should touch off industry rejoicing, even if just for a day.
If anyone has reason to be sad about the reported deal’s collapse, it would be Sun, which was already on shaky ground. Instead of Big Blue, Sun might turn out to be just blue.
The Rush to Russia
Timing is everything, isn’t it?
On the same day IPC named an official representative for Russia, calling it “a market with enormous growth potential,” a leading research firm basically threw in the towel on Putinland.
“Russia now is facing a cessation of new investment, along with shutdowns in existing facilities and delays in new ones,” iSuppli said in a press release today. The firm pointed to aborted attempts by Foxconn, Flextronics and others in trying to get operations there up and running, and noted that while Elcoteq has been building in the country for years, its investment there has been so unprofitable, the telecom EMS tried in vain to find someone to dump it on and finally decided to shut it down.
In its announcement of Yury Kovalevsky as its official representative to Russia and Russian-speaking countries, IPC said the appointment is part of a “long-term plan to expand services and standards globally.” Kovalevsky, IPC said, will make IPC services “widely available to companies in Russia, a market with enormous growth potential for both electronics manufacturing services and printed board production.”
That comes as news to iSuppli.
I’m not saying one side is right and the other is wrong. By outsourcing translations and distribution of its standards, IPC can position itself to make money even if the market doesn’t materialize any time soon.
But it’s hard to escape iSuppli prinicipal analyst Adam Pick’s damning statement: “With the ongoing recession and financial crisis, however, it appears that most of the interest in penetrating the Russian market has disappeared. Furthermore, the historical record for electronics manufacturers operating in Russia has been plagued by multiple problems.”
Pick ticks off a series of reasons: the Russian economy; social and political issues; tariffs and value-added taxes; shifting policies and laws; slow material supply chains and a lack of electronics supply chain infrastructure; inefficient distribution; Russian mobs; counterfeiting rates so high it would make the Chinese blush.
On the other hand, in market terms, IPC is probably buying low. Like I said, timing is everything, right?
Relisted
Research firm iSuppli’s Top 10 Global EMS firms list, which came out today, differs in several respects from Circuits Assembly’s findings.
Why? It may be that the iSuppli data for Foxconn take into account non-EMS related sales (the company also produces bare boards and connectors, among other things). Even so, Foxconn itself last week reported 2008 revenues of $42.3 billion.
iSuppli also excludes Cal-Comp Electronics/Kinpo Electronics from its list, despite that company’s contract manufacturing revenues of $3.2 billion last year, which would place it seventh overall.
Finally, iSuppli includes Universal Scientific in its ranking, although the Taiwanese company reports EMS sales of just $490 million in 2008.
Plexus Delivers, Again
Plexus this week reported December quarter revenues were flat with last year’s, which for this market counts as a huge win, as most top tier EMS firms saw revenues drop 3% or more. The world’s 10th largest EMS company also turned a net profit, making it a rarity among its large publicly traded competitors.
It’s a testament to the company’s wisdom years ago when it decided to forego chasing revenues in favor of concentrating on the higher margin medical, military and aerospace markets. That foresight, coupled with solid execution, has put Plexus at the forefront of its peer group.
All of which justifies Circuits Assembly’s selection of Plexus as its 2008 EMS Company of the Year.
As markets turn down, EMS companies historically reach for any piece of business they can get to keep factories full. This means new competition. This week, for example, Flextronics chief executive Mike McNamara said the company is “very bullish” on the medical end-market, adding “more and more outsourcing opportunities are coming out of this environment. And it is an industry that is very reasonably new in terms of outsourcing. We think that is a big upside.”
Things aren’t going to get easier in Neenah. But we think the company remains the best-positioned to survive this cold winter.