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Celestica CEO talks internal changes, acquisitions, EMS

VentureOutsource.com: What changes would you still like to see at Celestica?
Muhlhauser: We’d like to see greater emphasis on the engineering services we provide, as potential opportunities for us to further reduce the cost, or improve the quality for customers.

 

Celestica EMS NPI facility, Toronto, Canada.

 

We’d like to see customers begin to think of us differently in the mind of the potential we bring. We also want to become more involved in the downstream service and support of our customers’ products, so we can learn from the experience they’re having in the field and do a better job of recommending design solutions, to prevent those problems from occurring in the future.

And finally, we’d like to strengthen our relationships with our suppliers, to help us work together more collaboratively as an eco-system, to make our customers successful.

VentureOutsource.com: Let’s talk about partnerships, roadmaps, and future strategy.  Aside from acquisitions, does part of Celestica’s long-term strategy involve any type of strategic partnerships?
Muhlhauser:
We’d like to expand our relationships with many of our core customers and existing customers to a partnership level. So, I would say yes in the sense we would like to have more intimate and deeper relationships with our customers throughout their supply chains, and throughout their lifecycles of product.

We’d like to develop deeper and long-lasting relationships with a few of our core suppliers that represent the opportunity for investment in the future, and are aligned with the strategy of our company.

We’d also like to consider, on a selective basis, broader partnerships with possibly some of our competitors or other companies that are competing in the same space, where the combination of our two companies might make more sense than the individual companies competing on their own merits.

VentureOutsource.com: Its common knowledge Celestica is looking for acquisitions within the healthcare sector, primarily plans for buying intellectual property, technology, or market position. Can you share more insight into the types of acquisitions you see as attractive? Would you want to preserve cash, and look at a combination of cash and debt for some of these acquisitions?
Muhlhauser: Well, as I mentioned, we have a series of activities underway that have identified about 12 to 14 companies that represent capabilities or competencies or in some cases customer relationships that would allow us to accelerate our progress in the healthcare market, so we’re looking selectively at those.

These opportunities tend to be small, what I call “tuck-in” acquisitions, that would enhance our current healthcare business that would expand our capabilities to take on more scale in healthcare, or might bring certification. Those would be well within the ability for Celestica to fund that as part of our internal funding.

Obviously, as Celestica continues to grow, we will be looking at our capital structure, and evaluate – continue to evaluate — various forms of capital to continue to enhance the growth of the company. As you know, Mark, we’re well positioned with our balance sheet, having a strong net-cash position. (See, also: How to measure key metrics and financial indicators inside EMS providers)

We have a signification number of new opportunities – for now, we think we’ve got the internal financing capability, but as time passes, we would obviously look at other forms of capital to continue to allow us to grow.

VentureOutsource.com: What impact will Celestica’s healthcare roadmap play in the types of services, or changes in these services, the company offers or plans to offer to customers?
Muhlhauser: I think it would be an expansion of the services that we’ve offered to the leading technologies in the technology industry. We will be working to enhance our technology; our technical position, our certifications, and our competencies to be able to take on the most technically challenging, complex areas of the healthcare business, and offer total cost of ownership benefits; access to developing markets, and the same type of benefits we’ve brought to various OEMs in the tech industry…the ability to customize their products to particular requirements, manage the complexity, and at the same time offer a significant cost advantage as well as a lead-time advantage.

VentureOutsource.com: What growth opportunities do you see for Celestica in 2010?
Muhlhauser: We see a broad range of growth opportunities across most of our major markets. In particular, we see emerging opportunities in the IT enterprise space, as in storage systems and servers. We see this expanding into various aspects of data center solutions.

We see broad based opportunities in healthcare, commercial aerospace and defense, industrial and cleantech or alternative energy, and we see continuing opportunities in various segments of the communications business, especially in the areas of optical, as well as access.

Looking more broadly in consumer we see set top boxes…the connected home, the convergence of video, data, voice and the various aspects of communication as well as continued growth in the smartphone space.

VentureOutsource.com: What trends do you see emerging in the EMS industry and how do you see the industry changing five years from now?
Muhlhauser: One of the major trends is OEMs are continuing to consolidate so purchasing power is continuing to fall into the hands of fewer and fewer companies. Obviously, financial strength and the ability to invest to support those companies are going to be critical.

I see a continuing challenge from the emerging Asian competition. Asian companies are continuing to look for opportunities to enhance their business portfolio into higher margin segments.

I see the developing markets of Asia as well as countries like India and possibly Brazil, becoming a more significant part of the future growth of the industry, and I also see more pressure on the industry to assume higher levels of risk, to support the requirements of the OEMs. (See, also: Challenges facing India’s EMS industry)

There are many trends, but those are a few.

VentureOutsource.com: What do you think about Foxconn’s announcement to launch retail stores in China to possibly help Foxconn win manufacturing business via ways such as enticing OEMs with a Chinese retail presence to further help OEMs promote their electronics brands in China?
Muhlhauser: Obviously I have a lot of respect for Foxconn. I can say that they, like us, are looking at expanding their services, and apparently have chosen the retail opportunity as an outlet for their business. That’s certainly a unique opportunity for a company that’s based in China…to give market access to companies that are interested in gaining share in the China market. (See, also: How China’s labor wages are impacting EMS)

So one way or another, I can understand the rational, but for a company like ours – we’re very much clear on the things that we do well and the things that we don’t do well, and one of the things that we’ve never done is attempted to be successful in the retail market.

VentureOutsource.com: Is there anything else you’d like to share with readers?
Muhlhauser: I think Celestica has gone through a fairly dramatic transition in a short period of time. One of the things I would like readers to remember is that Celestica is a very young company; we’ve only been in business for 13 years. We think our best years are ahead of us.

We’ve made a lot of progress in the last three years.

We’re well positioned among the top companies in the industry. We certainly have a high level of respect for our competition, but recognize that our customers remain very demanding, and will continue to be very demanding, but we’re confident there will be a strong market opportunity for a company that delivers the value we believe Celestica delivers.

(Interviewed January 25, 2010)




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