The loss of an $80 million customer has only strengthened MCMS Inc.'s resolve to bring in more OEM clients to bolster its sales and bottom line.
In fact, MCMS, a privately held contract electronics manufacturer based in Nampa, Idaho, is well on its way to accomplishing that goal. The midtier CEM lost its second-largest customer, Fore Systems Inc., late last year, according to chief executive Rick Rowe.
MCMS has filed a breach of contract lawsuit against the Warrendale, Pa., networking company, for which the CEM provided complex printed-circuit boards and system-level assemblies.
Fore, now a part of Marconi Communications, has filed a countersuit that MCMS executives say has "no merit." A Fore spokesman declined to comment on the litigation.
"Fore decided to move certain end-of-life programs," Rowe said. "Anytime $80 million is pulled out, that's painful. We have other customers, but Fore dragged on our earnings."
For the second quarter of fiscal 2000, which ended March 2, MCMS' net loss widened to $9 million, or $1.99 a share, from a loss of $4.5 million, or $1.10 a share, in the year-ago quarter. Sales in the period fell 14%, to $99 million from $116 million. In fiscal 1999, MCMS had revenue of $432.7 million.
"The [recent] quarter was difficult as anticipated, but we're very pleased with how we've positioned the company for future growth," Rowe said.
Earlier this month, MCMS signed a manufacturing contract with Tachion Networks, an Eatontown, N.J., networking company. The agreement calls for MCMS to provide new-product prototypes, engineering services, complex PCBs, and systems assembly for Tachion's next-generation broadband- service solutions.
Last month, Digital Lightwave Inc., a Clearwater, Fla., maker of high-speed optical-networking solutions, and MCMS worked out a deal for the CEM to provide manufacturing capacity for some of Digital's components.
MCMS last month also forged a strategic partnership with Atmosphere Networks in which the CEM will offer a broad range of prototype and volume-manufacturing services to the Campbell, Calif., optical-networking company.
"We're winning a lot of new programs," said Chris J. Anton, MCMS' chief financial officer. "We don't need OEM divestitures to [improve] our growth rates. We've been succeeding with customers that are past the start-up phase and have contracts between $10 million and $30 million that aren't on the radar screen [of larger CEMs]."
MCMS has manufacturing sites in Nampa; Durham, N.C.; Penang, Malaysia; Monterrey, Mexico; and Colfontaine, Belgium; and an international procurement office in Singapore. Plans are under way to open a manufacturing operation in San Jose.
Last year, the CEM expanded its low- cost Malaysia plant from 36,000 sq. ft. to 118,000 sq. ft. Its combined manufacturing capacity is 641,000 sq. ft.
MCMS' U.S. expansion plans involve "growing with our customers," Rowe said.
Communications giant Cisco Systems Inc. is among MCMS' largest clients, but the CEM says its customer "sweet spot" are those in the $30 million to $80 million range. MCMS has four customers with contracts of more than $100 million.
"We're not disadvantaged by size. We have the same global footprint as the other [midtier] players," Rowe said, adding that he expects revenue to exceed $550 million this calendar year.
And just as privately held midtier CEM Manufacturers' Services Ltd., Concord, Mass., will go public this year, an MCMS IPO is on the horizon, according to Rowe.
"We could likely file an IPO in 12 months," he said. "This quarter was our low [point]. The worst is over."
MCMS entered the CEM business in 1989, a year after it had been spun off from Nampa-based memory maker Micron Electronics Inc.
At that time, a New York equity company, Cornerstone Equity Investors LLC, acquired 90% of MCMS for about $256 million. Micron Electronics Inc. California, a wholly owned subsidiary of Micron Electronics, owns 10% of the CEM.