Sanmina-SCI may keep IBM Manufacturing Deal, says report
Dec 09, 2004
Credit Suisse First Boston said Sanmina-SCI has a 70% chance of retaining its original manufacturing deal with IBM, the electronics manufacturing services provider's largest customer.
IBM recently announced a $1.75 billion sale of its PC business to Lenovo, China's largest PC maker.
CSFB cited three factors working in the company's favor: "Sanmina-SCI's contract with IBM provides final-assembly services for markets where Lenovo has no presence; Sanmina-SCI has an existing relationship with Lenovo; and one of the principal locations of the PC business will be Raleigh, N.C., a location where Sanmina-SCI already builds the PCs for IBM."
The research firm said the "worst case scenario" would be for Sanmina-SCI to lose its business with IBM/Lenovo by the end of 2006. "Our analysis suggests that under this scenario revenue growth in 2006 would be cut by 60% to the low single digits, with earning per share reduced by up to 10 cents," it said. "However, depending on how well Sanmina-SCI manages the emptied capacity, the departed business could have an accretive effect on margins by late 2006, in time to save 2007 earnings."