Jabil Enters Supply-Chain Software Business

By Loretta Chao 

Jabil Circuit Inc., a supplier for companies including Apple Inc., is entering the supply-chain software business, joining a host of other manufacturers attempting similar moves as electronics sales slow.

The St. Petersburg, Fl.-based company, which also manufactures for Cisco Systems Inc. and General Electric Co., will begin making its internally-developed supply chain management software available for subscription in the first quarter of 2017, said Don Hnatyshin, Jabil's chief supply chain and procurement officer. He said software could eventually generate $100 million annually for Jabil, which reported $17.9 billion in net revenue last year.

Jabil already uses the cloud-based platform to monitor its suppliers and its customers' suppliers, and react more quickly to potential disruptions in their supply chains from natural disasters and other factors. When an earthquake struck Kyushu Island in Japan in April, for example, the software helped a customer identify a supplier that lost power, and within hours found an alternative supplier outside the region that had sufficient stock to fill the customer's need -- a response that would have taken weeks to do manually, the company says.

Jabil's move into "software-as-a-service," or SaaS, comes as demand is growing for technology to help companies manage increasingly global and fast-paced supply chains. The market for supply-chain management software grew 11% to $11.1 billion in 2015, on a constant-currency basis, and is estimated to grow to $17.6 billion by 2020, according to research firm Gartner.

The move underscores how, Jabil and other electronics manufacturers including Flextronics International are pushing beyond their traditional business to more high-margin products and services.

"This really goes in line with a trend we're seeing with [electronics manufacturing services] companies in general, which is to move more into services, design, engineering and value-add," said Stifel Nicolaus & Co. analyst Matthew Sheerin.

Taking components and assembling boards has "become a low-margin business and is largely commoditized, so Jabil, Flex and others are moving more and more toward engineering services" as well as supply chain and logistics expertise, he added.

A more diversified revenue model would be especially helpful for Jabil, which can see large swings in its own revenue when its largest customers lose or gain market share, analysts say. In its fiscal year that ended Aug. 31, Apple constituted 24% of its $17.9 billion in annual revenue.

Write to Loretta Chao at [e-mail]

(END) Dow Jones Newswires

October 25, 2016 09:58 ET (13:58 GMT)

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