SCI chief: Business has stabilized

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NEW YORK--SCI Systems CEO Eugene Sapp said Wednesday that the company's fourth-quarter results could come in at the high end of its projections.

"We have reason to believe going into the summer that the numbers could be up," said Sapp, speaking at a CIBC World Markets investment conference here. SCI (NYSE: SCI) is a contract equipment manufacturer and makes products for the likes of Hewlett-Packard.

In the company's latest earnings report, SCI told Wall Street to expect earnings to be down from the preceding quarter. According to First Call, SCI is expected to report fourth-quarter earnings of 27 cents a share, down from 28 cents a share in the third quarter.

On SCI's earnings conference call last month, the company said its fourth-quarter earnings will be about 26 cents to 29 cents a share on sales of $1.9 billion to $2 billion. The company also cut 15 percent of its work force, or 5,500 jobs.

"We've picked up some incremental business that should make things flat instead of down," said Sapp.

Sapp said SCI is benefiting from its computer business. SCI derives about 35 percent of its sales from PC makers. Other contract equipment manufacturers such as Flextronics International (Nasdaq: FLEX) and Solectron (NYSE: SLR) are more reliant on sales to telecommunication equipment makers such as Nortel Networks (NYSE: NT).

"We expect to see upside as early as summer and no later than the fall," said Sapp. "The computer business has set the floor."

SCI is the latest tech company to indicate that business has stabilized. On Tuesday, both Brocade Communications and Applied Materials said business has bottomed out.

Wall Street analysts have said recently that business has bottomed out for contract equipment makers. Analysts said they are confident SCI, Jabil Circuit (NYSE: JBL), Solectron and Celestica (NYSE: CLS) will hit estimates.

"Order rates appear to have stabilized across a number of product categories with order cancellations and push outs having slowed," said Ellen Chae, an analyst at Prudential Securities. "Although there has generally been no significant pick up in orders, products such as PCs, PC peripherals, servers, storage and medical products were noted as stable or showing some relative strength."