analysts are skeptical of its parent company Solectron Corp.'s acquisition strategy.
Duncan Young, DY 4 Systems' director of marketing, says the Ottawa subsidiary
has seen some big changes since Solectron took over its parent company C-Mac
Industries for US$3.6 billion on Dec. 3. DY 4 is now officially a business unit of
Force Computers, which is itself a unit of Solectron.
Late in January, DY 4 announced it completed its integration into Force Computers,
clearing the way for the two companies to lay claim to a sizeable chunk of the
imbedded computer market.
Young says the first parts of DY 4's transition into the larger company are now out
of the way, which is positioning the firm for expansion.
"The integration was the first hurdle. We're a long way through that because we
have so much in common with Force," he says. "The focus is back to growth. That's
what you will see next."
The combination of DY 4 and Force creates a company with a large chunk of the
imbedded computing market. While DY 4 continues to focus on computers for the
defence and aerospace industry, Young says Force's focus on computers for
telecommunications systems opens a new sales channel for DY 4.
Imbedding computing refers to computers that control very specific functions like
operating an engine or part of a machine. DY 4's technology is marketed toward
customers that require products capable of withstanding harsh extremes in
climate.
Despite seeing two changes in ownership in 18 months, Young says there has
been very little change at DY 4.
"There have been remarkably few changes," he says. "We don't anticipate any
changes. There will be a small number of corporate Solectron goals set out, but
that has more to do with corporate culture than anything else."
Young is cagey about the specifics of these changes in corporate culture, saying
only that DY 4 is happy to have a global giant's sales channels at its disposal.
While Young is tight-lipped about DY 4's parent, those following Solectron are
unsure the electronics manufacturing and supply chain management company is
heading in the right direction.
In its fiscal second quarter, Solectron is forecasting revenues of between US$2.7
billion and US$3.2 billion. Even if the company reaches US$3.2 billion, it will be at
least half a billion dollars below previous market expectations.
When the company warned the Street in January, some analysts were quick to
pounce on Solectron's growth strategy.
"Everyone has the same problems with the market, but Solectron has lost market
share," said Jim Savage, an analyst at Thomas Weisel Partners. "Solectron has
not been well focused in driving the business forward. Their inventory is too high
and their cash conversion cycle is higher than their peer group's."
Louis Miscioscia, an analyst with Lehman Brothers, says the Street has concerns
about Solectron's timing.
"I'm pretty bearish on them," he says. "I mean, they purchased C-Mac, which is a
company that relies on Nortel for 50 per cent of its revenues. They bought these
companies at a time when telecom was going down and they're not buying these
companies on the cheap."
If Young is wary of the criticism that's out there, it doesn't show. Instead, he says
DY 4 is taking full advantage of the economies of scale that go along with being
part of a tech giant. "Their manufacturing base is worldwide and that can work to
our advantage," he says.
