Celestica Inc.

Celestica
Type	Public
Industry	Electronics
Founded	1994
Headquarters	Toronto, Ontario
Key people	Craig H. Muhlhauser (CEO)
Products	Computing, communications, aerospace and defence, consumer, industrial, automotive electronics
Revenue	6.526 billion USD (2010)[1]
Net income	-14 million USD (2007)[1]
Employees	42,000 (2008)[1]
Parent	Onex Corporation
Website	www.celestica.com

Celestica Inc. (TSX: CLS NYSE: CLS) is a multinational electronics manufacturing services (EMS) company headquartered in Toronto, Canada. Celestica’s global manufacturing network comprises more than 40 locations in 11 countries in the Americas, Europe and Asia, supplying a wide variety of leading OEMs (original equipment manufacturers). In addition to manufacturing, the company's global services include design and engineering, systems assembly, fulfillment and after-market services.

History[link]

Origins[link]

Celestica's Toronto headquarters were originally the location of IBM's Toronto sales and support offices, which also supported a small manufacturing unit which built metal boxes for their mainframe computers and associated support systems. Eugene Polistuk, a graduate of the University of Toronto in 1969,^[2] joined IBM and rose through the ranks before taking over the Toronto manufacturing division in 1986.^[3]

As the world turned from mainframes to microcomputers, Polistuk's operations were forced to reduce headcount in 1986 and 1988. In response, Polistuk started to diversify the plant's product lines, building circuit boards, memory products and power supplies that could be used in a wide variety of IBM products. The $300 million investment was successful, and by 1993 most IBM divisions were buying some of the systems produced in Toronto. The factory site expanded several times.^[3]

Spin-off[link]

As IBM transitioned from a hardware company to a software and services company, the future of the manufacturing unit was in doubt despite its financial successes. In 1992 Polistuk suggested that the entire division be spun off into a separate company that would offer their services to anyone. His arguments slowly won over IBM's management, and in January 1994, Celestica was formed as a wholly owned subsidiary of IBM Canada.^[3] IBM's other divisions at the location moved to new buildings to the northeast, on the border of Markham.

Polistuk immediately invoked changes in order to break out of what he saw as a moribund management structure left over from the IBM days. An early move was to institute a 5% pay cut in exchange for a profit sharing program that could reap up to 30% of base pay.^[3] Another move was to make the same share offerings to everyone in the company, breaking with conventional options plans that offer the best prices to executives.^[2]

By the end of Celestica's first year of operations, they had signed up 40 new customers. Non-IBM customers had originally accounted for only 10% of their output, but was now standing at 30% and growing. This process was helped as major players in the computer industry started the process of outsourcing their own production systems. However, Polistuk felt that the only way to truly reach their potential was to have someone buy the company from IBM.^[3]

Onex purchase[link]

In May 1994, Polistuk met with Anthony Melman of Onex Corporation about a potential buy-out. IBM was not interested in selling, however, as the division was one of the most profitable sections of their Canadian operations. However, after continued agitation, in 1996 IBM Canada agreed to sell the business and hired Nesbitt Burns to find potential buyers. After a selection process, five were allowed to review Celestica's books. Onex's bid of $750 million for 69% of the company won the final selection in October 1996.^[3]

This triggered rapid expansion at Celestica. In 1997 they bought UK-based Design to Distribution, the manufacturing division of International Computers Limited which itself was part-owned by Fujitsu. Later that year they purchased major portions of Hewlett-Packard's manufacturing lines, including their PC board plant in Fort Collins, CO, their system assembly plant in New Hampshire, and their system design shop in Chelmsford, MA. In October they bought Ascent Power Technology, who had power supply manufacturing in Canada, the US and UK.^[3]

By the end of the year, only 25% of its business came from IBM.

Going public[link]

In July 1998 Onex took the company public, raising $414 million, the largest IPO in the EMS field. This infusion of capital sparked another round of growth, and during the year the company bought International Manufacturing Services in Asia, and added factories in northern California, Mexico, and Ireland. By the end of the year, the company was turning over $3.2 billion annually.^[3]

By 1998 the global EMS market was estimated to be around $60 billion, with projections that it would be over $150 billion 2003. Polistuk considered this to be conservative, noting "By 2001, to be among the largest contract manufacturers in this business, you'll need $10 billion in annual revenues. Just five years ago, nobody would have thought there would be a $10 billion EMS, but soon that is going to be the minimum to be a Tier 1 company."^[4]

Several additional stock offerings were made from the original Onex pool; $251 million in March 1999 and $225 million in May. A second public offering in November added $488 million. The money was used to fund more purchases, adding five factories in the Czech Republic, two in Italy and another each in Ireland, the US, Brazil and Malaysia. By the end of the year they had a turnover of $5.3 billion, making them the third largest EMS in the world. On 6 June 2001, Polistuk was appointed Chairman of the Board.^[5]

Crash[link]

The dot-com crash and telecoms crash in 2001 led to a worldwide drying-up of EMS work. In April 2001 the company announced it was laying off 3,000 people, about 10% of its workforce.^[6] The company later announced that Polistuk would be taking a 1/3 pay cut as part of a wider series of compensation rollbacks.^[7]

Several rounds of lowered guidance followed, in spite of new supplier contracts and continued acquisitions. Losses mounted, and on 29 January 2004, the company announced that Polistuk would be retiring. In April, Stephen Delaney took over the CEO position.^[8] A second round of layoffs followed in 2005, along with the sale of several divisions. Operations stabilized, along with the rest of the market, through 2008.

Operations[link]

Celestica’s global manufacturing network comprises more than 40 locations in the Americas, Europe and Asia. The company's global services include design and engineering, manufacturing and systems assembly, fulfillment and after-market services. Celestica also holds a contract for Xbox 360 console repairs for defective units produced in Canada.^{[citation needed]}

Controversy[link]

On Friday, 12 January 2007 a shareholder class action suit was filed in New York against Celestica and members of the company’s executive team. The complaint alleges that the company made materially false and misleading statements about the business and failed to disclose adverse facts, namely:

• (i) that the Company was experiencing declining demand in its Mexican operations and that the division was carrying significant amounts of unneeded inventory which would have to be written off;
• (ii) that the Company was experiencing declining demand in its Information Technology (IT) and Communications market segments as its larger customers scaled back purchases; and that the stock dropped when this information later became public.

This class action suit was dismissed in 2010.^[9]

References[link]

Notes[link]

Bibliography[link]

• (History), "International Directory of Company Histories: Celestica, Inc.", The Gale Group

• David Einstein, "Top Tech Execs: Eugene Polistuk", Forbes, 12 December 2000

• Robert McGarvey, "Outsourcers Rise Again", Upside, February 2000

External links[link]

Companies portal

• Company Website
• Company security filings
• Company security filings
• EMS Research On Celestica By iSuppli