Jabil enhances position in mobile-phone market with GPE acquisition

Jabil Circuit Inc.'s acquisition of Taiwan-based Green Point Enterprises Co. Ltd. (GPE) offers a number of benefits for Jabil and further strengthens the company's competitive position in the mobile-phone market, iSuppli Corp. believes.

In January, Jabil, a U.S.-based Electronics Manufacturing Services (EMS) provider, announced it successfully completed the tender offer for Taiwan-based GPE. Under the terms of the deal, GPE's 30,000 employees, including the management team, will join Jabil, while the GPE name will be retained and the operation will be independent as a business unit under Jabil.

GPE specializes in tooling, casing and surface treatment - e.g. coating - technology and supplies mobile-phone cases to leading OEMs. The company has deepened its penetration into the wireless handset market as a casing supplier in recent years.

iSuppli believes that this acquisition offers a number of benefits for Jabil and further strengthens the company's competitive position in the wireless handset manufacturing landscape.

Key motivations for this acquisition include:
-- Enhancing Jabil's mechanical engineering capabilities. Jabil trails its competitors such as Foxconn Electronics Inc. and Flextronics International Ltd. in mechanical engineering technologies. GPE's capabilities will enable Jabil to offer more vertically integrated solutions in the manufacturing of wireless handsets and consumer electronics.
-- Deepening Jabil's relationship with Nokia. Nokia has become a significant customer of Jabil's, contributing more than 20 percent of Jabil's revenue during the last two quarters. Because Nokia prefers that its contract manufacturers possess in-house tooling and molding capabilities, we believe this move by Jabil will enhance Jabil's partnership with Nokia.
-- Opening up new opportunities with other wireless handset OEMs. GPE's revenue grew by a whopping 46 percent to $523.1 million in 2006, up from $358.2 million in 2005. Roughly 70 percent of GPE's sales came from wireless handset cases bought by OEMs such as Motorola Inc., which accounts for more than 40 percent of GPE sales; Sony Ericsson, which accounts for more than 20 percent of sales and Philips, which accounts for 5 percent of sales. Therefore, this deal will allow Jabil to make inroads into these leading OEMs at a faster pace.
-- Providing Jabil with margin lift. GPE's estimated gross margin and net margin in 2006 were 22.7 percent and 8.8 percent respectively, much higher than those of major EMS providers. As such, GPE will provide margin lift for Jabil.

Table 1 presents an assumed scenario for Jabil's fiscal year 2006 financial performance with GPE's contribution rolled into the combined entity. Please note that the two companies' fiscal calendars are not synchronized. The table is created to depict the margin lift scenario for Jabil.
(Revenue in Millions of U.S. Dollars)

                                       Jabil         GPE            Combined Entity
Revenue ($M)                   10,270.0      523.1               10,793.1
Gross Profit ($M)                    772.0     118.7                    890.7
Gross Margin                        7.5%         22.7%                   8.3%
Net Income ($M)                   337.0        46.0                    383.0
Net Margin                            3.3%         8.8%                     3.5%

Source : iSuppli Corp. | February

As shown in the table, the GPE acquisition would raise Jabil's gross margin to 8.3 percent, up from 7.5 percent, and its net margin to 3.5 percent, up from 3.3 percent.

iSuppli regards the GPE acquisition as a major win for Jabil in the wireless handset manufacturing industry and believes that GPE will help equip Jabil with the necessary prowess to compete against market leader Foxconn in the future.

More detailed analysis of the wireless handset value chain can be found in iSuppli's upcoming report, Global OEM Manufacturing and Design Analysis (GOMDA) - Wireless Handset Module, scheduled for publication in the first quarter. For more information on the GOMDA service, please visit: http://www.isuppli.com/catalog/L2_goma.asp