Shifting Production Outside China ‘the Exception, Not the Rule’: Jabil CEO

Jabil CEO Mark Mondello has been in “lots of conversations” the past two to three years with customers weighing moving production outside China amid U.S.-Chinese trade tensions and now COVID-19 factory closures, he said on quarterly call Thursday (see Q1 materials here): “When it comes to actioning on those, I don’t think there has been a lot of change." Customers acting to “de-risk mainland China” by moving production have been “the exception, not the rule,” he said. The contract manufacturer builds for Apple, Cisco, HP and other brands. It operates 50 million square feet of factory space at 90 plants in 23 countries, and “our factories are running at what I would call very normalized utilization rates,” said Mondello. COVID-19 “has put a halt” on most companies’ “strategic decisions” to shift from in-house manufacturing to outsourcing production through Jabil and other contract manufacturers, he said. “A lot of companies have battened down the hatches in terms of preservation of cash,” he said. “Everybody kind of wants to see where COVID goes. Does this vaccine work? What does vaccine distribution look like? What’s the timing of the vaccine taking hold?” He expects companies to revisit sourcing decisions late in 2021 into 2022, once they perceive the pandemic has gotten more “stable,” he said. Robust remote-work and learning demand in Jabil’s manufacturing services business for mobility products and connected devices sent revenue soaring 32.3% to $7.83 billion, said Chief Financial Officer Mike Dastoor. Revenue for the quarter ended Nov. 30 came in more that $800 above the midpoint September guidance, he said. Jabil experienced higher revenue through pent-up demand and growth with existing customers, plus “market share gains” said Mondello. The stock closed 7.4% higher Thursday at $44.09.