SCI Systems to shut 10% of capacity

SCI Systems, Inc., Huntsville, Ala., reported that it expects pro forma cash EPS from ongoing operations in the range of 9 to 11 cents per share for its quarter ended September 30, lower than earlier expectations.

The company stated that it met its revenue guidance, with sales of approximately $1,760 million.

"SCI recorded charges to cover resolution of certain contract issues and increased inventory reserves during the September quarter, a period of continued economic weakness," said A. Eugene Sapp, chairman and CEO, in a released statement.

"These charges and reserves accounted for about half the shortfall. In addition, because of lower than expected demand from certain major telecommunications customers, SCI experienced a lower margin business mix than we had expected."

SCI also announced an aggressive plan to reduce capacity further in light of continued market softness, especially in telecommunications. "We now plan to close several additional plants, representing approximately 10 percent of capacity and primarily in high cost locations, in order to further right-size our operations and cost structure for current market conditions and future opportunities," said Sapp.

The company stated that it expects charges up to $200 million compared to the $70 to $100 million that it earlier projected, to include the plants in the current plan. The company also expects additional plant closings and consolidations once its merger with Sanmina Corp. is completed, with associated incremental charges in the range of $50 to $70 million.

The company stated that the above Pro Forma cash earnings per share were before any of these charges, and excluded the losses experienced during the quarter from manufacturing facilities the company is closing or plans to close.

"End market demand continues to be depressed, and this is reflected in our financial results. However, we are encouraged by SCI's success in winning its share of the OEM outsourcing that is occurring, the balance and future potential of our business mix, and the large number of existing and emerging acquisition opportunities under consideration.

"After three consecutive quarters of declining backlog, our September quarter ending backlog was sequentially flat, another encouraging sign."