CELESTICA CLS: NYSE OR TSX

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CELESTICA (CLS NYSE OR TSX)

• WIC (NOV 15/2004)

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Company Overview

• Engaged in the delivery of electronic
  manufacturing services.
• Provides range of services in to original
  equipment manufacturers in the information
  technology and communications industries.
• Specializes in printed mother boards
• Overall difference is ability to manufacture high
  end machinery.? Disadvantage Now
• Seeking diversification into foreign markets and
  consolidation of factory work in an attempt to
  cut margins

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Optimizing Your Portfolio

• Diversification Risk
• True diversification vs enlarged position
• Pick the fastest horst

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Rising Interest Rates

• Bond prices are inverse to interest rates
• So are metal commodities
• At the end of every expansion, the commodities
  peak first, then the bonds, then the stocks.
  John Murphy-

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The Declining US Dollar (USD)

• Could prop-up oil prices
• Lead to increase in commodity prices
• Which could lead to inflation fears
• Leading to a further rise in the interest rates

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The CRB (Commodities Index)
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INDUSTRY ANALYSIS

• MAJOR COMPETITORS Flextronics International,
  Jabil Circuit Inc., Sanmina SCI Corp., Solectron
  Corp.
• Margins continuingly shrinking
• Quickly Shrinking Demand Price Pressure
• Move towards simpler products vs. High tech of a
  few years ago

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Competitor Analysis

• Jabil Flextronics only profitable company out
  of direct competitors
• ?This due to vast diversification and focus on
  simpler technologies
• Other companies all struggling with demand
  decreas, increasing cost of sales and price
  pressure
• Market dependant on 4 major companies (CISCO,
  MICROSOFT, SUN MICRO SYSTEMS, LUCENT
  TECHNOLOGIES)
• All competitors trying to diversify through
  product line acquisition
• ENTIRE MARKET CAN BE CONSIDERED VOLATILE

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Key Success Factors

• Need to cut margins!
• Diversify into asian markets
• Diversify product range either through expansion
  or acquisition

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CELESTICA INTERNAL ANALYSIS

• Clean Balance Sheet -1billion free cash
• Lowering Debt status by issuing convertible debt
• Major restructuring and diversification
  (including acquisition) based around trying to
  improve margins
• Margins improving
• Focus on hi-tech technologies market during times
  of decreasing demand bad for margins
• Staying on analyst expectations in terms of
  financials
• Strong international market penetration
• CEO describes company as being volatile at best
  with respect to recent trends in the market place
• Losses for the past three years, with increasing
  cost of sales

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CELESTICA Key Success Factors

• Necessary to continue working on margins
• Acquisition plans of 2001 need to be successful
  looking forward
• Need companies such as IBM and Oracle to continue
  performing well
• Diversification of major products
• Work on client relationships

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CHART
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RATIO ANALYSIS

• Forward PE _at_ 37.9 vs. industry average around 21.
• Projected Long-Term EPS growth still lower than
  industry
• Profit margin (-2.60) lowest amongst major
  players
• Five year sales growth _at_ 4.95 lower than major
  competitors which are in the 20-50 range
• Net Earnings -221M trailing in the top 3
  companies in the industry
• Revenues shrinking every year and lower than
  major players

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CONCLUSION

• VOLATILE MARKET
• DIVERSIFICATION AND ACQUISITION MAJOR PART OF
  FORWARD TREND
• MARKET RECOVERY???
• PRICE PRESSURE
• CLEAN FINANCIALS
• RECORD OF CONSECUTIVE LOSSES