1999 began with a whimper for electronics manufacturing service providers and ended with a celestial hallelujah. And going by analysts' ringing endorsement of the sector, that chorus of praise will reverberate at top-tier EMS companies' shareholders' meetings for the next several quarters.
Top-tier EMS players and chip makers-the undisputed winners last year-again led the EBN/Thomas Weisel Supply Chain higher in the seven-day trading period ended Dec. 27. The index rose 12.7%, to 2,042.22, a record high, on a torrid 13.23% increase from the semiconductor segment and a 11.38% jump in the top-tier EMS segment.
Which of the two segments will outperform the other in the first quarter of 2000? Technology investors are betting on a neck-and-neck race. The fundamentals of both segments are strong going into the new year, and they're expected to strengthen. Demand for certain semiconductor components is surging due to designers introducing ICs into every imaginable product.
EMS companies, on the other hand, are hot because they help OEMs cut costs. And, as a nascent industry, they have yet to peak.
"2000 will prove to be another excellent year for the EMS [sector], and the opportunity for investors is significant," said Shawn Severson, an analyst at Raymond James & Associates Inc., St. Petersburg, Fla. "The solid fundamentals of the industry, high visibility of the earnings stream, and potential for upside earnings revisions will allow the EMS sector to be a top performer over the short and long term."
EMS providers and chip makers weren't the only winners in the final days of 1999. All other segments had double-digit increases during the period, except for distribution and IP&E.
Radisys Corp., a designer and manufacturer of embedded computing solutions used by telecommunications OEMs, had the highest percentage increase. The Hillsboro, Ore., company surged 40.13%, to $54.13, after it agreed to purchase IBM Corp.'s Open Computing Platform business for nearly $30 million. The IBM unit's 1999 revenue was estimated at between $45 million and $50 million by Thomas Moro, an analyst at Advest Inc., Hartford, Conn.
"The purchase will deepen the company's relationships with current OEMs, as well as add new customers in the telecommunications industry," Moro said. "This business is similar to another purchase by Radisys-Texas Micro-but was made for deeper penetration into new and existing customers."
Meanwhile, Integrated Device Technology Inc. and Atmel Corp. each rose more than 25% to their highest levels in 52 weeks. IDT closed at $30, while Atmel climbed to $29.44.