However, competition is now fast catching up to Foxconn with Pegatron, which derives 60% of its revenues through Apple, eyeing a share in Apple’s supply chain. Apart from the rapidly increasing competition, labor problems at Foxconn in China have further put pressure on the company’s performance.
Flextronics International Ltd. (NASDAQ:FLEX) is another key competitor to Celestica Inc. (USA) (NYSE:CLS), which finds itself on a sticky wicket with Blackberry. BlackBerry is one of its largest customers, contributing well over 10% of the company’s overall revenue. The cost-cutting initiative by BlackBerry is expected to have a huge impact on the company’s earnings in the future.
Flextronics International Ltd. (NASDAQ:FLEX) made strategic acquisitions of Stellar Microelectronics and Saturn Electronics, which added cable, solenoid, and microelectronics capabilities to its business. Additionally, divesting non-core assets and deploying new technologies gave a boost to the company’s shares, enabling it to recently clock its 52-week high of $7.39. Moving ahead, the company’s acquisition of Motorola mobility operations will further allow it to bolster its growth in the high velocity division. The company’s free cash flows of approximately $680 million will enable the company sufficient downside cushion and adequate funds to incrementally develop through its R&D.
Key takeaway for investors
The present macroeconomic environment has led to global demand falling sharply on account of the euro crisis and the U.S. economic slowdown. EMS companies are now looking to diversify into new territories, such as aerospace to defense in order to sustain growth in revenues.
Celestica is in a transitional phase, as it is focusing on moving from the high velocity low margin business to high margin business. Under the leadership of Muhlhauser, a former executive with Ford Motor Company (NYSE:F) and GE, the company is moving up the value chain.
With EMS companies, growth largely depends on the demand for its client products; hence, the current economic downturn has been extremely tough for the company. Nonetheless, as the conditions show signs of improvement and growth picks up, EMS companies are expected to report good numbers, especially with the rapidly growing demand from the APAC region.
I believe, Celestica Inc. (USA) (NYSE:CLS)’s stock is a reliable investment. Going forward, the company may stumble across a few bumps, however patient investors would be rewarded.
The article Can Celestica Transform Into a Global Supply Chain Player? originally appeared on Fool.com and is written by Kiran Gulati.
Kiran Gulati has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Kiran is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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