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News ::
High Tech Wars (english)
01 Feb 2003
Its high-tech war; from the Gulf to U.S. board rooms, the fight is being carried out with the latest technologies. There aren't any soldiers in these wars, only circuits, software and wireless communications.
high_tech_war.jpg
Its high-tech war; from the Gulf to U.S. board rooms, the fight is being carried out with the latest technologies. There aren't any soldiers in these wars, only circuits, software and wireless communications.

High Tech Wars
Its
high-tech war; from the Gulf to board rooms, the fight is being
carried out with the latest technologies. There aren't any soldiers
in these wars, only circuits, software and wireless communications.
By Freddie
Mooche - Axcess Business News
A
Japanese warship equipped with a high-tech Aegis missile detection
system left for the Indian Ocean on Dec 9, a controversial move
some analysts say signals support for a possible U.S.-led attack
on Iraq.
Japan now has
four of the ships, another is on order and funds have been requested
for one more.
In other high
tech circles, accounting software makers are trying to capitalize
on a string of high profile scandals by developing computer programs
that flag unusual bookkeeping and launch investigations with little
human intervention.
As technology
advances few components are as vital as the circuitry being used
and most of that technology is U. S. property. During the boom and
bust days of the semi conductor industry, trade swung from U.S.
dominance to Asian markets and back again.
China
too has been getting more involved as a world player in these fast-paced
shifts of economies, providing many labor intensive tasks for lower
wages that manufactures have chased around the world to find. In
every shift of that economy, countries have been left with idle
workers as competitive prices forced component manufactures to seek
new sources.
While high tech
economies continue to shift, American circuit manufacturing is still
the dominant player. According to Standard & Poor's, their investment
outlook for the S&P Electronic Equipment and Instruments Index
is neutral overall, but they view positively the electronic contract
manufacturing component of the Index. S&P also believes economic
recovery may not occur until the second half of 2003, as the sub-industry
group's recent 13-week decline supports their view that overall
business spending will not recover that quickly.
S&P View
of Electronic Contract Manufacturing Remains Positive
Industry fundamentals
are improving; inventory levels have declined considerably, the
book-to-bill ratio for printed circuit boards is well above trough
levels, and production of goods is being shifted to lower cost world
regions.
A trend toward
out sourced manufacturing is gaining momentum, as companies seek
to reduce costs while focusing on marketing and R&D efforts.
Over the long-term,
technological and process innovations continue to spur demand for
more advanced tools, aiding future earnings growth in the industry.
For electronic
contract manufacturers, there has been a significant shift by computer
hardware, networking and other vendors toward out sourcing manufacturing,
and this trend shows no signs of abating.
Several companies
are already showing signs of this shifting market, Jabil Circuit
(NYSE: JBL) shares have climbed 14% in the last 30 days to close
Friday at $18.30 after steadily declining from their 52 week high
of $27.
A
smaller player in the circuit board field, Integrated Performance
Systems (OTCBB: IPFS) has
shown similar swings in market trading to the Equipment and Instruments
Index, closing up Friday 13.4% after being added to Axcess Business
News "best picks" Stock
Guide that morning. IPFS closed Friday at $1.10.
Although Integrated
Performance had a 52 week high of $2.25, its shares faired better
than JBL over that period showing similar declines but recovering
on news of improved sales. The company had announced record volume
of new orders on Nov 13 and announced an additional order on Nov
26, outpacing its Industry Groups overall performance.

(The
above chart compares IPFS to JBL
for
the prior 52 weeks, IPFS is shown in black and JBL is in
brown)
Where is
the market going

Defense giants typically out source many component requirements
to small companies. Axcess Business News had touched on that
area in our prior Top Story, "From
Smart Bombs to Smart Bags - technology is in demand."
While S&P
remains positive to the contract manufacturing component of the
Index, analysts believe some companies will outperform even Standard
& Poor's positive view. The companies that may fair best are
those with niche markets like Integrated Performance Systems (IPFS)
whose commercial RF circuit boards are especially valuable in underdeveloped
nations that do not have telephony infrastructure in place as many
of these countries move into wireless applications.
High performance
computers and telecom switching equipment require more advanced
circuit boards with improved signal integrity, lower weight, lower
temperature and superior impedance control. These types of boards,
DWT, are a more expensive process to manufacture but carries many
distinct advantages, as described above.
Analysts expect
that niche market to expand in proportion to the increases in computing
speeds. Currently, worldwide DWT revenue is estimated at $40 million
with domestic sales accounting for 35% of that market. The two domestic
suppliers are Integrated Performance Systems (OTCBB: IPFS) and Advanced
Interconnect Technology. Advanced leads that market with sales of
$10 million while IPFS sales were only $3.7 million. IPFS estimates
it will surpass Advanced in sales through innovative design and
high quality workmanship.
Advanced, a
privately held company focuses most of its efforts in custom wafer
bumping to the semiconductor industry in Hong Kong while still procuring
R&D funding. Advanced Interconnect Technology's market share
is therefore only an assumption given the company's foreign operations
and R&D status.
Integrated Performance
Systems RF circuit boards have strong potential as well and internationally
provide the company with multi-market opportunities for a specialty
niche circuit board manufacturer.
Jabil Circuit
(NYSE: JBL) designs and manufactures electronic circuit board assemblies
and systems for original equipment manufacturers in the communications,
computer peripherals, personal computers, and consumer product industries.
For the fiscal year ended 8/31/02, revenues fell 18% to $3.55 billion.
Net income fell 71% to $34.7 million. Revenues reflect decreased
production of computing and storage products. Net income also reflects
an increase in restructuring charge.
Axcess Business
News believes that both JBL and IPFS are growth companies. Although
JBL's faced down markets for its products and shrinking margins
while IPFS has had the opposite happen.
Based on S&P's
sub-industry outlook as of Dec 14, JBL shares may be overpriced
at $18.30 with the lowest pretax margin (1.8%) of all those companies
shown in that S&P Sub-Industry Outlook. Axcess Business News
noted that for Peer Groups with more than 15 companies or stocks,
S&P's selection is based on market capitalization. IPFS's market
capitalization is less than $10 million. However, IPFS manufactures
products with significantly higher profit margins and less competition,
and has shown as much growth as JBL has shown shrinkage.
It appears to
Axcess Business News that IPFS is undervalued, even at its
prior 52 week high of $2.25 its shares would still be undervalued
against its Industry Group's Peers based on operating margin.
One of the lowest
priced stocks in that S&P Industry Group is SigmaTron International
(NasdaqSC: SGMA), which closed Friday at $3.87. SGMA had pretax
profit margins of only 2.9% and had climbed and fell on the same
curve as IPFS from its 52 week high of $5.09 to as low as $1.39
before recovering.
IPFS shows
signs of exceeding both JBL and SGMA's pretax margins in 2003 and
is showing no signs of slow growth, supporting Axcess Business
News views toward its share price being significantly undervalued
at its current level. The Company may see its value climb to between
$4 and $5.00 by mid-2003 assuming it continues its fast paced growth
in sales and earnings.
Axcess Business
News will continue to report on the electronic equipment and
instruments segment of the Information Technology Sector, and these
companies activities, for our readers. Watch your in-box for any
news alerts on this and other late breaking business news. If you're
not a member, consider subscribing now
and you can get these great market alerts too!

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us your feedback on this story
See also:
http://www.theaxcess.net
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