The chart attached above provides a segregation of Jabil revenue by segment. They are one of the leading providers of worldwide manufacturing services and solutions. They provide comprehensive electronics design, production and product management services to companies in the automotive and transportation, capital equipment, consumer lifestyles and wearable technologies, computing and storage, defense and aerospace, digital home, healthcare, industrial and energy, mobility, networking and telecommunications, packaging, point of sale and printing industries.
They derive substantially all of their revenue from production and product management services (collectively referred to as “manufacturing services”), which encompass the act of producing tangible components that are built to customer specifications and are then provided to the customer.
Their cost of revenue includes the cost of electronic components and other materials that comprise the products they manufacture; the cost of labor and manufacturing overhead; and adjustments for excess and obsolete inventory. As a provider of turnkey manufacturing services, they are responsible for procuring components and other materials. This requires us to commit significant working capital to their operations and to manage the purchasing, receiving, inspecting and stocking of materials.
Although they bear the risk of fluctuations in the cost of materials and excess scrap, they periodically negotiate cost of materials adjustments with their customers. Net revenue from each product that they manufacture consists of an element based on the costs of materials in that product and an element based on the labor and manufacturing overhead costs allocated to that product. Their gross margin for any product depends on the mix between the cost of materials in the product and the cost of labor and manufacturing overhead allocated to the product.
Their operating results are impacted by the level of capacity utilization of manufacturing facilities; indirect labor costs; and selling, general and administrative expenses. Operating income margins have generally improved during periods of high production volume and high capacity utilization. During periods of low production volume, they generally have idle capacity and reduced operating income margins.
They monitor the current economic environment and its potential impact on both the customers they serve as well as their end-markets and closely manage their costs and capital resources so that they can try to respond appropriately as circumstances change. The chart attached above provides a segregation of Jabil revenue by segment.
They have consistently utilized advanced circuit design, production design and manufacturing technologies to meet the needs of their customers. To support this effort, their engineering staff focuses on developing and refining design and manufacturing technologies to meet specific needs of specific customers. Most of the expenses associated with these customer-specific efforts are reflected in their cost of revenue. In addition, their engineers engage in research and development (“R&D”) of new technologies that apply generally to their operations. The expenses of these R&D activities are reflected in the research and development line item within their Consolidated Statement of Operations.
An important element of their strategy is the expansion of their global production facilities. The majority of their revenue and materials costs worldwide are denominated in U.S. dollars, while their labor and utility costs in operations outside the U.S. are denominated in local currencies. They economically hedge certain of these local currency costs, based on their evaluation of the potential exposure as compared to the cost of the hedge, through the purchase of foreign currency exchange contracts. Changes in the fair market value of such hedging instruments are reflected within the Consolidated Statement of Operations and the Consolidated Statement of Comprehensive Income.
Jabil Revenue By Segment
|Revenue By Segment||Q2 2018 (Thousand)|
|Diversified Manufacturing Services||$2430613|
|Electronics Manufacturing Services||$2870488|
The chart attached above provides a segregation of Jabil revenue by segment. They have two reporting segments: Electronics Manufacturing Services (“EMS”) and Diversified Manufacturing Services (“DMS”), which are organized based on the economic profiles of the services performed, including manufacturing capabilities, market strategy, margins, return on capital and risk profiles.
Their EMS segment is focused around leveraging IT, supply chain design and engineering, technologies largely centered on core electronics, utilizing their large scale manufacturing infrastructure and their ability to serve a broad range of end markets. Their EMS segment is typically a lower-margin but high volume business that produces product at a quicker rate (i.e. cycle time) and in larger quantities and includes customers primarily in the automotive and transportation, capital equipment, computing and storage, digital home, industrial and energy, networking and telecommunications, point of sale and printing industries.
Their DMS segment is focused on providing engineering solutions, with an emphasis on material sciences and technologies. Their DMS segment is typically a higher-margin business and includes customers primarily in the consumer lifestyles and wearable technologies, defense and aerospace, healthcare, mobility and packaging industries.