By John McHale
MILPITAS, Calif. — Leaders of DY 4 Systems, the ruggedized embedded computer powerhouse in Kanata, Ontario, are set for new top management after DY 4 parent C-MAC Industries Inc. in Montreal announced plans to become part of Solectron Corp. in Milpitas, Calif.
Solectron's proposed buyout of C-MAC would create an electronics manufacturing company that generated combined revenues of $16.7 billion in 2000, of which DY 4 contributed about $100 million.
DY 4 will reap the same benefits from the Solectron-C-MAC combine that the company did when it C-MAC bought it last year, says Duncan Young director of marketing at DY 4. Solectron has extensive manufacturing resources, large amounts of capital, and facilities worldwide, he adds.
DY 4 lacks a geographic presence in many of the countries it sells to, Young says. Now as a part of Solectron DY 4 will be able to take advantage of Solectron's extensive international facilities, he explains.
Young says his company will be a good fit for Solectron's Technology Solutions group, which also includes Force Computers in San Jose, Calif. Positioned in that group, DY 4 would be able to expand its foothold in the embedded computing market, he adds.
DY 4's digital signal processing subsidiary, Ixthos in Leesburg, Va., will remain a part of DY 4 with a separate brand name for the time being, Young says. However, there are plans absorb the organization completely into DY 4, and as a result, the brand name Ixthos will disappear, he explains.
The buyout of C-MAC by Solectron may be a harbinger of things to come, say industry observers. "We're going to see even more consolidation among contract electronic manufacturers (CEM)," such as Solectron and C-MAC, says Ray Alderman, executive director of the VME International Trade Association in Scottsdale, Ariz.
The CEM business usually has a growth rate of about 7 percent, Alderman says. That sounds low, but not if the CEMs can pump out a huge amount of volume, which is where they make their money, he explains.
However, current economic conditions are tough especially in the telecommunications business, where C-MAC and Solectron are big players, Alderman says. When volumes are low and times are tough companies have a tendency to merge to improve cash flow and diversify and in turn get their volumes up, he explains.
C-MAC was already a step ahead in the diversification game with their purchase of DY 4, Alderman continues. DY 4 is a major producer of military commercial-off-the-shelf electronics, a market that is showing strong growth and can help offset losses that occur in the telecommunications industry, he adds.
Solectron officials say they expect the merger to generate an estimated $60 million to $120 million in synergies through cost savings and revenue opportunities as a result of the transaction. The company expects the transaction to be accretive to fiscal 2002 earnings, company officials say.
"C-MAC's systems-solutions expertise helps Solectron meet a key long-range initiative and further strengthens our industry-leading technology, manufacturing, and supply-chain services," says Koichi Nishimura, Solectron chairman, president, and chief executive officer. "In addition, the transaction provides us with access to the automotive electronics industry, which we have specifically targeted for growth."
"The combination of C-MAC's integrated, selectively vertical technology design manufacturing services with Solectron's range of supply-chain services will create a formidable global leader," says Dennis Wood, chairman, president, and chief executive officer of C-MAC.
"Solectron has much more critical mass than we do to handle very, very large outsourcing opportunities," says Morton Thayer of C-MAC's marketing department. They also have a "world-class supply-chain management structure," he adds.
Some of the main advantages C-MAC brings to Solectron are technology development, an international presence, and diversification, Thayer says. "We have divisions that develop their own products for specific markets such as automotive and military," he adds.
The transaction also expands Solectron's presence, level of business investment, and customer services in Canada, Solectron officials say. C-MAC has facilities in seven cities in Quebec, Manitoba, and Ontario. Solectron has facilities in Calgary, Alberta, and in Vaughan, Ontario.
The Solectron and C-MAC merger is a $2.7 billion stock transaction and should be finished by the end of the year, Solectron officials say. The boards of directors of both companies have approved the transaction, which is subject to customary closing conditions, including the approval of both companies' stockholders and regulatory approvals, Solectron officials say.
C-MAC's strong systems-solutions services, including complex full-system and electromechanical assembly, and optical networking component fabrication, complement Solectron's set of printed circuit board/advanced packaging and systems-solutions design and manufacturing offerings, Solectron officials say. Together the combined organization can now offer its customers a broader range of services, including fully integrated systems, company officials say.
Solectron also gains access to C-MAC's selective vertical integration capabilities, Solectron officials say. This "make or buy" approach captures the benefits of limited component fabrication while reducing exposure to a highly leveraged cost model, they add.