Thriving Jabil is ready for its close-up
A stellar 39 percent return annually over 10 years propels the contract electronics firm into the highest echelons of the FORTUNE 500.
NEW YORK (FORTUNE) - Given the daily drumbeat of bad news coming out of Detroit, it's refreshing to see a company with Motor City roots thriving in today's global economy. That outfit is Jabil Circuit (Research), a leading maker of circuit boards and other electronic components - the "plumbing," so to speak - that power devices from Hewlett-Packard (Research), Nokia (Research), Philips Electronics (Research), and 150 other firms.
Given its role as a contract manufacturer, Jabil is normally content to stay behind the curtain - you'll never see its brand at Best Buy (Research), for sure - but the stunning growth of this little-known company with the funny-sounding name is worth spotlighting.
Over the past ten years, Jabil has boosted earnings per share by an average of 34 percent annually, tops in its industry by far and better than Intel (Research) and Texas Instruments (Research) combined.
Even more impressive: Over that same decade, Jabil averaged a 39 percent annual return to shareholders - besting every company in the FORTUNE 500 save for two. Not bad for a company launched by a Detroit ditch digger. (Jabil's name comes from a blending of the first names of the founders, James Golden and William Morean.)
Thanks to a strong second quarter, during which revenue rose 35 percent, Jabil's stock is up 13 percent so far this year to just over $41. And it's not due to cool down anytime soon: most analysts still rate Jabil a buy, and blue-chip mutual funds like Columbia Acorn's Z fund have recently bought the stock.
"We see no signs of this growth engine slowing," wrote Thomas Weisel Partners analyst Matthew Sheerin in a recent research note, in which he raised his revenue and earnings estimates for the year.
Jabil's affable, soft-spoken yet supremely confident CEO Tim Main, who recently sat down with FORTUNE editors, also hails from Motown; in fact, he worked at a Detroit bank that loaned Jabil the money to fund its early growth, which was driven by contracts from General Motors (Research) and ACDelco in the late 1970s. (Main joined the firm in 1987 and became CEO in 2000.) Today, 7 percent of Jabil's business comes from the automotive sector, and while the company relocated to Florida in 1983, it still maintains a plant in Michigan.
As you would expect, the bulk of Jabil's manufacturing takes place in Asia, including four factories in China and a recent acquisition in India. In those countries - and around the world - Jabil has perfected a somewhat unique business model based on a loose federation of autonomous business units that work closely with customers like Nokia.
These units - there are about 40 of them - decide where products get built, lease plants from Jabil, operate their own supply chains, and work off their own P&L statements. The mini-companies also get quite attached to their clients: Main remarked that some employees of its Cisco (Research) business unit have worked alongside the tech giant for 14 years.
"They know everything about Cisco," says Main, "and they work on Christmas because they don't want Cisco to go down."
AMR Research senior analyst Alison Smith agrees, "These guys bend over backwards to make sure they meet customer commitments."
This setup distinguishes Jabil from its industry peers, many of whom are struggling. The stocks of Flextronics (Research) and Solectron (Research) plummeted 25 percent and 31 percent, respectively, last year.
"Our competitors take a geocentric approach, where someone runs all of Asia or Europe," Main says. In such a system, "sharing information becomes problematic. With our approach, all decisions about price and materials are made with a dedicated group of people who only have one customer. Nobody in our industry does it this way."
Jabil's so-called "work cell" approach did not come without its hiccups - when the company first tried the system in the 1980s, Main recalls, there was concern among employees that it would muck up operations. But over time, it won the day, mainly because the setup allows Jabil to quickly react to the ever-changing demands of customers, be they for HP printers, Nokia handsets, or Philips' electronic gadgets.
And that demand is skyrocketing, as more and more companies - from aerospace contractors to medical device makers - choose to outsource their manufacturing needs. Main says that the top 25 providers of outsourcing will rack up $136 billion in revenue this year, a $20 billion increase over 2005.
Jabil alone should generate nearly $10 billion in revenue this fiscal year (up from $7.5 billion last year), over a third of which will come from consumer electronics, Jabil's largest sector. When Main became CEO, Jabil did no work in consumer electronics whatsoever.
Perhaps its hottest segment, however, is instrumentation and medical devices, which can range from simple blood glucose monitors for diabetics to advanced equipment that runs MRI machines to semiconductor test apparatus. Another fast-growing field is aerospace.
"The future is extremely bright for us," says Main. If only the same could be said for General Motors.
Plugged In is a daily column by writers of FORTUNE magazine. Today's columnist, Matt Boyle, can be reached at email@example.com.Next: See the 2006 FORTUNE 500
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