New Plexus Unit in Romania - Analyst Blog

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Plexus Corp ( PLXS ) recently announced its plan of replacing its existing leased facility in Oradea, Romania, by building a new factory. The manufacturing unit is expected to come up in the Eurobusiness Industrial Park and will span 280,000 square feet. The unit is surrounded by vacant land, which the company can use for future expansion.

Plexus expects to complete construction by 2013, which is expected to cost an additional $40.0 million. The increased capacity of the factory will also boost staffing levels. The present leased facility employs 245 workers, but Plexus expects to increase it to 500 once the new unit becomes operational.

We believe that the new expanded unit will help Plexus meet the improving end-market demand. During the first quarter of 2012, Plexus won 28 new programs in the manufacturing solutions group, which are expected to generate approximately $203.0 million in annualized revenue when production ramps.

Plexus is well positioned to benefit from the increasing outsourcing trend among the medical, industrial and defense/aerospace OEMs. Currently, Plexus has new manufacturing opportunities of approximately of $1.9 billion, of which 40.0% is from the fast-growing medical sector.

The construction of the new facility also reflects Plexus' policy of expanding its manufacturing footprint in the low cost regions of Romania, Scotland, Mexico, Malaysia and China. In fiscal 2011, Plexus commenced construction of a new unit in Xiamen, China. The construction is expected to be completed by the second half of fiscal 2012.

The company has also built a new manufacturing facility in Penang, where it recently shifted certain assets acquired from Kontron AG during the first quarter. The acquisition is expected to add incremental revenues of $50 - $75 million for Plexus, based on specified volumes from Kontron and will be modestly accretive to its earnings in 2012.

We believe that Plexus will have to seek new opportunities to expand its production capacity, particularly in the low cost regions to meet the increasing demand. Plexus plans to expand its total manufacturing capacity to approximately 3.5 million square feet by 2014 from 2.8 million square feet in 2011. We believe that Plexus's policy of shifting production to lower-cost regions will boost profitability going forward.

However, intense competition, continued component challenges and supply chain constraints remain major concerns for Plexus over the long term.

Thus, we have Neutral recommendation on Plexus over the long term (6-12 months). Currently, Plexus has a Zacks #3 Rank, which translates into a Hold rating for the short term.


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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