Struggling under the weight of excess inventory and with limited cash, XeTel Corp. has become the latest midtier EMS provider to be knocked backward by the air rushing out of the electronics market's burst balloon.
Shares of the publicly traded Austin, Texas, contract manufacturer hovered around 30 cents most of last week, after XeTel executives announced Tuesday that chairman Ronald Guire had resigned from the company's board. The news surfaced on the same day that XeTel postponed its fourth-quarter and full-year earnings results, which were slated to be released May 28. XeTel executives did not indicate when the results will be issued or whether the company has a successor lined up for Guire.
"There's bad news on the horizon," said David Miller, an analyst at Kaufman Bros. LP in New York. "The [company] had a lot of debt issues it could not resolve."
Neither Guire nor Angelo DeCaro Jr., XeTel's president, returned calls for comment.
Other midtier EMS providers' dire situation may speak volumes about what the future holds for XeTel. Earlier this year, peers APW Ltd. and Viasystems Group Inc. were delisted from the New York Stock Exchange for trading too long at volumes below the exchange's required threshold. Meanwhile, Pemstar Inc., another midsize contractor, released lower-than-expected returns after delaying its fourth-quarter results earlier this month. In addition, midtier players ACT Manufacturing Inc. and MCMS Inc. filed for bankruptcy protection last year.
Weak end-market demand, especially for the telecommunications sector, and heavy debt loads have taken their toll on cash-strapped contractors. In its fiscal year ended March 31, 2001, XeTel, which serves OEMs in the computer, industrial, medical, networking, and telecom sectors, generated revenue of $192.9 million and net income of $5.5 million. During the December 2001 third quarter, the company reported a net loss of $9.2 million, compared with a profit of $2.6 million in the year-ago period.
Most of XeTel's financial woes surfaced last year, according to the company's SEC filings, when it borrowed more money than was allowed under the terms of its bank credit facility. XeTel resolved its credit obligations in April of this year, but the company also has been burdened by inventory excesses from two major customers, Tellabs Inc. and L.M. Ericsson, which left it saddled with $7.5 million and $17 million in unused parts, respectively.