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SMTC Corporation plans to exit China
Electronics manufacturing service provider, SMTC Corporation, says it is planning to wind-down its Chinese manufacturing operations when its current Dongguan, China facility lease expires in December 2019.
“Customer concerns about uncertainties relating to the prolonged impact of tariffs and macro-economic factors have caused a number of our customers to begin to re-evaluate demand for some of their products and reconsider where they outsource their manufacturing,” says SMTC Corporation President and CEO Ed Smith, in a press release. Ed Smith continues to explain that revenues coming from the production at SMTC’s manufacturing operations in China – which accounted for 5.3% of SMTC’s revenue in the first half of 2019 – are projected to decline more than 30% for full year 2019 as compared to full year 2018, with continued contraction in 2020 which then would result in negative operating margins from our China site. “As a result, after more than a decade in the Chinese market, we will use the end of our lease term later this year as an opportunity to exit manufacturing in China as we continue to augment our strong North American manufacturing footprint,” Ed Smith. says. The company is now, across its sites in North America, addressing its customers’ needs for faster time-to-market for new product introductions by adding new capabilities and certifications to its Billerica, Massachusetts location this quarter. This expansion follows SMTC’s investment last quarter when the company upgraded and expanded the capacity at its Fresnillo facility in Zacatecas, Mexico enabling a 25% increase in capacity “We believe our expanding North American operations provide a strong foundation for continued growth,” Smith explains. SMTC expects to record, related to the closure of its China manufacturing operations, restructuring and other charges of USD 5.4 million to USD 5.8 million which includes up to USD 3.3 million of non-cash accelerated asset write-downs, and other cash-based expenses, including employee-related costs. The company also states that in addition to the China closure, SMTC is seeing a softness in certain end-markets across semiconductor and data center expansions. “Accordingly, we are updating full year 2019 revenue to range between $354 and $362 million, which excludes $16 million of revenues in 2019 attributable to SMTC’s operations in China, and Adjusted EBITDA to $25.0 and $26.0 million,” Smith concludes.
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