SCI Soars From Space Program to Lead Market

Electronic News, Feb 22, 1999

Huntsville, Ala. - SCI Systems has grown from its sixties roots as a military supplier primarily serving the space program and other aerospace activities to become the world's leading commercial contract manufacturer, helping define the business. Its revenues are currently running at a $7 billion level. "We are an electronic manufacturing services (EMS) provider, that's the politically correct way of saying contract manufacturer," SCI chairman Olin King noted recently.

Through aggressive acquisitions and internal expansion, SCI manufactures around the globe. Its latest planned foray is a pending market entry into China.

SCI's influence on the contracting business is huge. When it recently said coming quarterly results won't quite meet street expectations due to softness at one end-customer, SCI's stock, and the stocks of many other contractors, took a tumble. Still, most analysts see a bright future for SCI and its EMS colleagues, as the trend of OEMs to outsourcing continues to accelerate.

The firm has eight operational divisions, with six organized on a geographic basis and the other two structured along functional lines. It manufactures components, subassemblies and finished products primarily for OEMs, although it still maintains sizable defense/government business as well. Increasingly over the years, SCI and other contractors have been bolstering their design, engineering, purchasing, distribution and other support services for customers. The firm claims to operate the largest surface-mount technology production capacity in the merchant market.

Heavily penetrating the computer market, SCI provides both printed circuit board assemblies and finished computers. The majority of its plants produce printed circuit board assemblies for one or more of the leading computer companies.

Meanwhile, datacom and telecom products represent an increasing portion of SCI's production activities. The firm also produces a range of subassemblies for computer peripherals. A growing number of SCI's plants are approved to manufacture medical products to FDA requirements. Various other consumer and industrial products are also produced.

SCI also designs and manufactures military and aerospace products for U.S. and foreign governments and their prime contractors, as well as domestic and foreign aerospace companies.

Founded in 1961 as Space Craft Inc., the firm has benefited in the nineties, according to a recent report by Goldman Sachs, because "computer/electronics OEMs have outsourced an increasing proportion of their core manufacturing rather than merely utilizing contact manufacturing for swing capacity." The Goldman Sachs report adds "SCI's leadership in high volume production makes it the largest EMS vendor. SCI Systems distinguishes itself from its peers through its ability to manage the complex logistics of high volume production, including those for full systems assembly. While it manufactures a broad mix of products, including some highly complex custom products with batch sizes of one, SCI is best known for its ability to make PCs."

The report also notes the "trend toward outsourced manufacturing is spreading and irreversible. More and more, companies are finding that outsourcing is economically advantageous, allowing customers to reduce their manufacturing-related risk and lowering manufacturing costs. Many EMS customers are exiting the printed circuit board manufacturing business, giving contract manufacturers another growth engine and resulting in tighter, more strategic customer relationships."