Plexus shuts plant, lays off 400 employees

Jim Christie

SAN FRANCISCO: Plexus Corp. warned that its current quarter revenues would come in at the low end of its prior guidance and said it would take a charge of up to $60 million after closing a manufacturing plant in San Diego. Plexus said the restructuring was due to lower demand and because Powerwave Technologies Inc. had transferred work to a competing contract manufacturer's Asia sites for the March quarter. The announcement pushed shares in Plexus down $2.50, or 19.7 percent, to close at $10.17 on the Nasdaq exchange, where it was among Friday's top percentage losers.

Contract manufacturers have battered for more than a year by a tough economy and the sharp downturn in demand for technology goods -- from cell phones to PCs to high-end servers to network routers -- resulting in overcapacity. To cut their own costs and more aggressively bid to build tech products, contract manufacturers are increasingly touting low-cost assembly lines in Asia.

"In addition to continued weak end-market demand, our major customer in San Diego, Powerwave, notified us earlier this month of their intent to move several new programs to other non-Plexus facilities during the March quarter," Chief Executive Dean Foate said in a statement.

Foate said he expects the move by Powerwave, a Santa Ana, California maker of amplifiers for wireless communications systems, to affect 2003 revenue. Plexus, a rival of Flextronics International Ltd., Sanmina-SCI Corp. and Solectron Corp., previously expected a first-quarter per share results in a range from a loss of 2 cents to a profit of 2 cents per share, before restructuring charges, on revenue of $205 million to $215 million.

The company now expects to be in the bottom part of its first-quarter earnings and revenue ranges. Foate said Plexus expected fiscal second quarter revenue of $190 million to $200 million, with a loss of 2 cents to 5 cents per share, excluding restructuring charges.

On average, analysts had expected the company to post nil per share for the first quarter and a profit of 2 cents per share in the second quarter, according to Thomson First Call. Plexus currently estimates total nonrecurring charges of about $50 million to $60 million related to the restructuring in its current fiscal first quarter, which ends Dec. 31.

"It's disappointing. Not only because of the surprise from Powerwave, but because there seems to be weakness in the rest of their customer base, with an emphasis on the industrial electronics market in Europe," said Jesse Pichel, a Needham & Co. analyst. "A lot of the turn for Plexus depends on the high-end communications market, which is likely to take some time to improve," Pichel noted.

Plexus said it plans to consolidate buildings in Seattle and in the United Kingdom, realign operations at its home campus in Wisconsin and close a Dallas-based design center. The company said it expects to cut its global square footage by about 210,000 square feet.

© Reuters