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SCI Systems Inc (SCI,nyse) and Solectron Corporation (SLR,nyse)

Final Summary and Recommendation

April 22, 1997

SCI Systems, Inc. designs, manufactures, markets, distributes, and services electronic products for the computer, aerospace, defense, telecommunications, medical, and entertainment industries. SCI operates the largest surface mount technolgy (SMT) production capacity in the merchant market. SCI's sales quadrupled from 1992 to 1996, reaching $US 4.5 billion in fiscal 1996. Net profit margin increased each year from1992 to 1996, reaching 1.78% in fiscal 1996. Quarterly reports indicate earnings per share of $US 1.63 fully diluted for the first six months of fiscal 1997. At an estimated annual earnings per share of $US 3.26, the stock is currently trading at a P/E ratio of 15.5 to 1.

Solectron Corporation is a supplier of pre-manufacturing, manufacturing, and post manufacturing services to electronics OEMs. These services include product design, prototype development, printed circuit board assembly, service, testing, and repair. Solectron's sales seven-tupled from 1992 to 1996, reaching $US 2.8 billion in fiscal 1996. Net profit margin increased each year from 1992 to 1996, reaching 4.05% in fiscal 1996. Quarterly reports indicate earnings per share of $US 1.22 fully diluted for the first six months of fiscal 1997. At an estimated annual earnings per share of $US 2.44, the stock is currently trading at a P/E ratio of 20.0 to 1.

Both stocks have traded above $US 60 in the last 52 weeks. I expect an investment in SCI Systems, Inc. will produce a compound annual rate of return of 16 to 21% over the next 36 months. I expect an investment in Solectron Corporation will produce a compound annual rate of return of 17 to 22% over the next 36 months.

Click here to view Table 1.1 Comparative Earnings Performance.
Click here to view Table 1.2 Price Earnings Ratios.
Click here to view Table 1.3 Record of Common Dividends.
Click here to view Table 1.4 Financial Position and Capitalization.