Jabil opts for road less traveled

Jabil Circuit Inc. isn't compelled to always follow the crowd. The world's fifth-largest EMS company, Jabil has elected to make acquisitions only when necessary, build plants in key locations, and expand existing sites to fuel its growth.

�We're focused on our customers first and acquisitions second,� said Tim Main, president and chief executive of Jabil, St. Petersburg, Fla.

The contractor's growth plan includes focusing on both new and existing customers.

In January, Jabil stepped up its efforts in design and test services by forming Jabil Technology Services to attract business from OEMs seeking new-product-introduction (NPI) services.

Jabil strives to serve multiple business units and product categories within one customer. That approach has allowed the company to lower its selling infrastructure costs and benefit from a preferred-supplier status.

This year, Jabil sewed up the largest deal in its history: a three-year, $4 billion contract with Marconi Communications plc. Under the accord, Jabil will provide printed-circuit-board assembly and repair services for Marconi's communications division, which includes broadband switching and optical-network equipment. Marconi also sold Jabil five manufacturing facilities in Europe and the United States for $386 million.

Jabil did lose some business in early 2001 when Dell Computer Corp. said it would gradually move its notebook business to another contractor.

�Most of Dell's products have not historically fit well in Jabil's manufacturing model of focusing on high-volume and medium/high-complexity products,� said Shawn Severson, an analyst at Raymond James & Associates Inc., St. Petersburg. �With Dell's push into the server and storage businesses, there might be another opportunity for Jabil to rekindle that relationship.�

Observers say Jabil's IT strategy sets it apart.

At a time when competitors are looking to link diverse IT systems acquired in various buyouts, Jabil maintains a unified IT platform that enables the company to provide a �seamless manufacturing solution across multiple geographies,� said Michael Schneider, an analyst at Robert W. Baird & Co. Inc. in Milwaukee.

Jabil has focused on IT since the mid-1990s, according to Jim Savage, an analyst at Thomas Weisel Partners LLC in New York. �That approach has helped them, along with being less acquisitive [than other EMS companies].�

Despite Jabil's cautious approach toward acquisitions, the contractor hasn't escaped the recession unscathed. A substantial number of employees were let go during the year, and the company closed a Tijuana, Mexico, facility and transferred production to Chihuahua.

Although Jabil's net income for the year ended Aug. 31 fell to $118.5 million, from $145.6 million in fiscal 2000, its revenue rose 23%, to $4.3 billion from $3.5 billion.

Robert Baird's Schneider expects Jabil's revenue to increase 4.6%, to $4.5 billion, in fiscal 2002, and 42%, to $6.4 billion, in fiscal 2003. He estimates the company's net income will drop about 8%, to $135 million, in fiscal 2002, but grow 91%, to $258 million, in fiscal 2003.

�We're positive that for 2002, each quarter will be better,� Main said. �We're managing our growth. We're making select acquisitions and letting our [customer and financial] performance be the master.�

With $430.7 million in cash as of Aug. 31, Jabil is in good shape to carry out its strategy.

�Jabil is well positioned to benefit from the trend toward outsourcing and has strong customer relationships, leading working-capital metrics, and a strong balance sheet,� Schneider said.