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October 1, 2001

6 Min Read
Industry Watch

Computer market constriction, reorganization 
Feeling squeezed by a tightening PC market, two computer makers are attempting a merger that could leave their suppliers in a pinch. Months from regulatory approval, and battered daily by investor doubt, the proposed merger of Hewlett-Packard and Compaq may never happen, but nonetheless, it raises interesting questions about the PC market as a whole and the suppliers that are subject to its ebb and flow. 

Through the first six months of the year, the value of computer shipments totaled $60.3 billion, marking a 7 percent decline from the same period last year. Computer systems and peripherals suffered 7 and 8 percent drawbacks, respectively, while storage systems showed modest gains of 2 percent. In response, analysts are reining in growth projections for next year as pessimism mounts and molders' orders shrink. 

"We are essentially expecting a flat year this year," Dataquest's George Shiffler says. "We had previously forecast for next year something on the order of 13, almost 14 percent unit growth, but my bet is that we will probably take that down into the high single digits." 

U.S. Computer Equipment Industry Shipments

US$, billions (projected)

1992199319941995199619971998199920002001

60.462.471.083.493.3109.7114.4113.3134.9120.6Source: Dept. of Commerce, Office of Information Technologies



U.S. Computer
Equipment
Industry
Performance

US$, millions

(*includes parts
**excludes parts)
Source:
U.S. Census Bureau

Indicators

January-
June 2000

January-
June 2001

Percent
change

Shipments*64,56660,344-7

Inventories*50,68955,824+10

New orders*64,43560,441-6Unfilled orders*59,05662,169+5Exports**11,41312,000+5

Imports**25,65024,104-6

Trade balance**-14,327-12,104-15

 

 

 

 

 

 



Even decreases in inventories don't promise part demand for molders, according to Shiffler. 

"The inventory question is an interesting one," he says, "because we're actually figuring that given last year's experience, people are going to try to keep inventories pretty light so as not to get caught." 

HP and Compaq pulled the bulk of their manufacturing out of the U.S. some time ago, as many molders followed them to Singapore, Ireland, China, Mexico, and other locales to maintain the business relationship. 

Nypro, which counts HP as an $85 million customer, is one such molder setting up shop in Singapore, Ireland, and Puerto Rico to serve the computer manufacturer. Told by HP that it could be eight to nine months before hearing anything definitive, Nypro said it will wait for word and that it's simply too early to comment on any potential effect the merger would have. 

Trend Technologies manufactures components for both Compaq and HP, and shares the same wait-and-see sentiment. 

"My guess is they really haven't thought about how they are going to handle their supply base," says Brad Frank, Trend vp of strategic business. "Compaq is very centrally driven when it comes to the supply base. It makes all the decisions out of Texas [Houston]. HP has a lot of different divisions that are making their own independent decisions." 

Frank says that the fact that his company produces custom parts insulates it somewhat, but that others may not be so lucky. 

"If [companies] are caught in a Catch-22 where they're selling the same product to both of them at different prices, they might find themselves in a tight spot," says Frank. 

Gas-assist leaders unite 
Former rivals in the gas-assist arena have joined forces to become, in their words, "a world leader." Cinpres (Ann Arbor, MI) and Gas Injection Ltd. (Cheshire, U.K.) combined after Cinpres' parent company, BI Group Plc (Birmingham, U.K.) purchased Gas Injection for an undisclosed amount. 

Operating as Cinpres Gas Injection Ltd. (CGI), the new company will provide equipment and consulting services for the molding industry. In addition to gas-assist technology, the new company will also offer services for external gas molding, plastic expulsion processes, and water injection molding. 

The three-and-a-half-year plan 
From atop the lofty perch of a $65 million molding and tooling conglomerate, it can be easy to lose sight of one's beginnings. For SciTech Plastics Group the start was three and a half years ago, but CEO Wally Meyer can still see that time quite distinctly. 

"We started with zero," Meyer recalls, "literally, a clean piece of paper." 

Now, after the August acquisition of the Brookfield Group and its four companies, that piece of paper lists eight companies that put SciTech in the top 1 percent of molders in the U.S. in terms of revenue. 

"SciTech's mission is to buy plastic processing companies and to create a real presence in the marketplace," Meyer explains. "It is our desire to be a very, very big player in this business for the years to come." 

The Brookfield acquisition added two tooling shops, a rapid prototyping facility, and a molding plant to SciTech's lineup, which already featured three molders and an automation manufacturer. Eight facilities, four states, 500 employees, 115 presses, and 150,000 sq ft of molding production space make up the SciTech Plastics Group today. 

The company is banking on several things to maintain its success, including growth in the medical and electronics markets, scientific molding, and start-to-finish manufacturing. 

"If you target [market] segments that are in and of themselves growing faster than the average," Meyer explains, "then your business, assuming that you at least maintain, if not increase, market share, will increase as well." 

Of course, growth is also dependent on the production of good-quality parts, which is why scientific molding is key. "[Scientific molding] takes such tremendous investment and discipline," he explains, "but the payoff is you've got the lowest scrap rates, the highest quality, and guaranteed product when you need it." 

Another winning strategy is art-to-part manufacturing, which 20 percent of its customers use. "They deal with one source so there's not only convenience but also economy," Meyer says. 

Expansion through consolidation 
With the aquisition of Calden Metals in November 2000, injection molder Trend Technologies added soft and hard tool sheet metal fabrication and assembly to its offerings. This move enhances Trend's position as an integrated solutions provider for high-tech applications in the networking, telecom, and server markets. 

Trend acquired Calden's facilities in Mexico, Singapore, and Malaysia as well as plants in Chino and San Jose, CA. The California plants resided near established Trend molding facilities and were recently combined, says Brad Frank, vp of strategic business. 

"One of [Trend's] core competencies is running enclosure factories that integrate both metal and plastic under one roof," Frank says. He adds that the question wasn't if the plants would be consolidated, but when. 

After combining the San Diego molding facility with the 280,000-sq-ft metal fabrication plant in Chino, Trend focused on folding its north San Jose molding operations into the 230,000-sq-ft former Calden plant in San Jose. Market conditions forced an accelerated pace. 

"In the February and March time frame, the bottom fell out of the market," Frank says, noting big hits taken by customers Dell, Cisco, and Motorola. "So now all of a sudden, not only did we have multiple facilities in a given market—we also had multiple undercapacity facilities in that market." 

Despite the additional costs and planning required to integrate two inherently different operations like metal stamping and molding, Frank says the added flexibility paired with the special needs of the electronics market justify any costs. 

 

 

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