Three Islands Investments


SCI Systems Inc (SCI,nyse) and Solectron Corporation (SLR,nyse)

Final Summary and Recommendation

April 22, 1997

A lump sum investment in 1992 in the common shares of SCI Systems, Inc. would have produced a compound annual rate of return of 32.21% if the investment was divested on April 21, 1997. A lump sum investment in 1992 in the common shares of Solectron Corporation would have produced a compound annual rate of return of 27.40% if the investment was divested on April 21, 1997. The closing prices on April 21, 1997 for SCI and Solectron were $US 50-1/2 and $US 48-7/8, respectively. [Since April 22, 1997,  SCI has had a 2 for 1 stock split. Solectron has had two 2 for 1 stock splits]

SCI Systems, Inc. designs, manufactures, markets, distributes, and services electronic products for the computer, aerospace, defense, telecommunications, medical, and entertainment industries. SCI operates the largest surface mount technolgy (SMT) production capacity in the merchant market. SCI's sales quadrupled from 1992 to 1996, reaching $US 4.5 billion in fiscal 1996. Net profit margin increased each year from1992 to 1996, reaching 1.78% in fiscal 1996. Quarterly reports indicate earnings per share of $US 1.63 fully diluted for the first six months of fiscal 1997. At an estimated annual earnings per share of $US 3.26, the stock is currently trading at a P/E ratio of 15.5 to 1.

Solectron Corporation is a supplier of pre-manufacturing, manufacturing, and post manufacturing services to electronics OEMs. These services include product design, prototype development, printed circuit board assembly, service, testing, and repair. Solectron's sales seven-tupled from 1992 to 1996, reaching $US 2.8 billion in fiscal 1996. Net profit margin increased each year from 1992 to 1996, reaching 4.05% in fiscal 1996. Quarterly reports indicate earnings per share of $US 1.22 fully diluted for the first six months of fiscal 1997. At an estimated annual earnings per share of $US 2.44, the stock is currently trading at a P/E ratio of 20.0 to 1.

Both stocks have traded above $US 60 in the last 52 weeks. I expect an investment in SCI Systems, Inc. will produce a compound annual rate of return of 16 to 21% over the next 36 months. I expect an investment in Solectron Corporation will produce a compound annual rate of return of 17 to 22% over the next 36 months.


Click here to view Table 1.1 Comparative Earnings Performance.
Click here to view Table 1.2 Price Earnings Ratios.
Click here to view Table 1.3 Record of Common Dividends.
Click here to view Table 1.4 Financial Position and Capitalization.


Click here to view Figure 1.1 Balance Sheet Ratios.
Click here to view Figure 1.2 Earnings and Retained Earnings Statement Ratios.
Click here to view Figure 1.3 Combined Ratios.
Click here to view Figure 1.4 Value Ratios.



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