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|  | APRIL 5, 2005
S&P's Tech Company Report Card, Pt. 2 This installment provides financial and outlook overviews on companies in contract manufacturing and electronic equipment, and diversified tech outfits Here's the second part of a sectoral company-by-company look at Standard & Poor's credit ratings for the high-technology outfits followed by its credit analysts -- along with S&P's comments on the financial strength and business outlook for each company. (The first part covered companies in communications gear, and computers, components, and peripherals.) Additional portions of the review will be published in subsequent days (also see S&P's sector-by-sector overview of the tech industry).In this portion, S&P Ratings looks at: • Contract manufacturers • Diversified technology companies • Electronic equipment manufacturers Contract Manufacturers Benchmark Electronics (BHE ) BB-/Stable Benchmark continues stable growth, with fiscal 2004 sales up 8% and stable EBITDA margins of about 6% that compare favorably with those of top-tier EMS companies. Benchmark had no funded debt as of Dec. 31, 2004. Celestica (CLS ) BB-/Stable Celestica's fourth-quarter revenues grew 22%, to $2.3 billion, while lease-adjusted operating income more than doubled, to $121.9 million. However, these gains were overshadowed by $836 million in predominantly noncash restructuring charges relating to the decision to exit high-cost geographies that included a $161 million credit provision for a distressed customer. Liquidity is adequate. Flextronics International (FLEX ) BB+/Stable Revenue growth decelerated somewhat in the December quarter, to 3% from 20% generated earlier. Expectations are for sales to flatten at current levels because of constrained handset demand. Margins continue incremental improvement. Financial flexibiliy is expected to remain stable, despite approximately $700 million of payments for the Nortel acquisition, because of positive internally generated cash flow. HannStar Display B/Stable HannStar experienced a dramatic downturn in 2004 because of volatile TFT-LCD flat panel prices. Its EBITDA margin dropped further to negative 1% in fourth-quarter 2004 from 17% in third-quarter 2004. Operating loss is expected in the first half of 2005 because of depressed panel pricing. In response to the severe market conditions, HannStar has slowed its capital spending and maintained sufficient liquidity on hand. The company has NT$16.2 billion cash on hand as of Dec. 31, 2004, compared with NT$14.6 billion debt maturing in one year. In addition, HannStar has successfully issued US$263 million GDRs in March, 2005, which would help further enhance its liquidity position. Jabil Circuit (JBL ) BB+/Positive Revenues increased 21% in the November quarter compared with the year-earlier period, as its new Philips contract ramped up. Jabil Circuit is somewhat more exposed to the seasonality of consumer markets following the Philips transaction. As a result, March revenues likely will decline slightly. EBITDA margins have been stable, at around 7% over the past three quarters. Internally generated cash and existing liquidity should cover increased capital spending over the near term, to expand low-cost production and the recently announced Varian acquisition. Sanmina-SCI (SANM ) BB-/Stable Revenues continue a steady climb from the prior year but remain flattish sequentially, reflecting overall sluggish demand. Expectations for a modest drop in Sanmina-SCI's computing segment likely will suppress March revenue. EBITDA margins improved to 4%, up from the mid-3% range, but continue to be at the low end of its peer group. Sanmina-SCI announced additional restructuring charges in the December quarter to migrate production to lower cost areas. Proceeds of a recently issued $400 million note, supplemented by cash on hand, are adequate to meet Sanmina-SCI's $632 million put in September 2005. Solectron (SLR ) B+/Positive Solectron experienced a weak revenue quarter, with sales down 11% sequentially because of weakness in its networking and handset sectors. Margins, however, improved sharply to 4.2% from earlier levels of around 3%, in part because of lower sales in the consumer-electronics segment. Despite negligible free operating cash flow for fiscal 2004, asset sales contributed to ample liquidity of $1.6 billion. Vestel Elektronik B/Positive Vestel Elektronik's full-year results are expected to show sustained top-line growth, plus increased debt levels, because of continued investment in working capital and expansion of its production capacity. Vendor financing and its $393 million cash balances (at the end of June, 2004) will be used to fund the company's organic growth plans. Its credit metrics were improved, however, thanks to to a strengthening operating performance in the first six months of 2004, with revenues up 38% to about $1.2 billion year-over-year and EBITDA of 18%. Headroom (about 17% at at the end of June, 2004) under the bond-related financial covenants currently is adequate. Viasystems B/Stable Sales for the first nine months ended Sept. 30, 2004, have increased 28% from the year-earlier period, reflecting improving business conditions in Viasystems' markets, although the September sales level was 9% below June. EBITDA margins have slipped very modestly to 9% from about 10% to 11% generated in the first half of 2004 because of increasing raw material costs. Current credit statistics likely will remain stable, as Viasystems' free cash flow will be directed to capacity expansion, rather than reducing debt. Total debt to EBITDA is almost 5x as of September 2004.
BW MALL
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