While electronics manufacturers are holding back from declaring a recovery, some of the makers of circuit boards, computer components, and cell phones are increasingly optimistic business will improve.
Since the industry has already shed jobs and excess facilities, even a modest gain in technology spending next year could drive earnings sharply higher, analysts say.
Flextronics International Ltd. and Solectron Corp., two of the biggest contract electronics makers, this week signaled that demand appears to be on the mend, providing hope for a gradual turnaround after a long slump, analysts said.
That supports what analysts said they are hearing from technology companies, who hire contract manufacturers to build products.
"We're hearing that from multiple sources from different parts of the supply chain," Jim Savage, Wells Fargo Securities analyst said. "It seems to be fairly broad at this point."
Mr. Savage noted that some of the contract manufacturers' largest customers, including as Cisco Systems Inc. and Nortel Networks Corp., have recently indicated increased business.
Cisco earlier this month said its order backlog increased 14 percent from a year ago, and telecom equipment maker Nortel has been tapped by French mobile phone group Orange SA to supply its third-generation network.
"Printed circuit board companies believe they are seeing real growth in their market segments," Mr. Savage added.
Michael Marks, Flextronics CEO, on Thursday said: "Our business is actually improving and we are feeling very positive about it."
He added that Flextronics' cell-phone business was "clearly turning up" for the company, which also makes the Xbox game console for Microsoft Corp.
Solectron, Flextronics' rival, on Thursday forecast revenue growth of 10 to 15 percent in its current fiscal year.
Timothy Main, CEO of contract manufacturer Jabil Circuit Inc. last week said the St. Petersburg, FL, U.S.-based company was "looking forward to expanding and improving our business throughout fiscal 2004."
Jabil Circuit, whose customers include Dell Inc. and Hewlett-Packard Co., said it anticipates full fiscal year 2004 revenue to increase about 20 percent.
Even so, analysts remain cautious after previous false starts for a high-tech recovery and are concerned contract manufacturers' shares may be viewed as too expensive. Valuation is also a concern.
Analyst Chris Whitmore of Deutsche Bank Securities issued a research note on Friday in which he reiterated a "hold" rating on Flextronics. He called the company the "best long-term investment vehicle" among contract manufacturers, but said that with its stock trading at 38-times forecast calendar year 2004 earnings, investors should wait for a more attractive price.
Shares in Flextronics closed on Friday on the NASDAQ at U.S. $13.62, down 2 percent on the day and up 90.5 percent from a low this year of $7.15 in mid-February.
Solectron shares closed on the New York Stock Exchange at $5.98, up less than 1 percent on the day and up 113.6 percent from a low this year of $2.80 in mid-February.
Shares in Jabil closed on the New York Stock Exchange down 3.3 percent at $25.50. They are up 75.7 percent from a low this year in February of $14.51. (Reuters)
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