Research & Analysis: Benchmark Electronics (NYSE: BHE)

BHE

Benchmark Electronics (NYSE: BHE) is a contract engineering & manufacturing company with expertise in electronic manufacturing and precision technology services. BHE works with customers throughout the product lifecycle, from conception to volume production, utilizing its global supply chain to bring products to market. BHE caters to a number of industries, including:

• Aerospace & Defense

• Medical

• Industrial

• Semiconductor Capital Equipment

• Advanced Computing & Communication

BHE has faced certain risks in recent quarters across its market segments with uneven growth, particularly in Medical and AC&C. The medical device market has faced a challenging few quarters during an elongated period of inventory digestion, leading to the broader industry facing substantial declines. AC&C has likely faced similar challenges, particularly in the communications and telecommunications markets.

Looking ahead, I’m forecasting declines to moderate in eq2’25 and turn to positive growth in e2h25. With BHE’s global manufacturing presence, the organization has substantial flexibility to service its global customer base with the ability to migrate manufacturing from region to region in order to provide a more appealing cost structure.

Strategically, BHE is turning to more complex products for customers in the wake of high-performance computing, liquid cooling systems, and next-generation broadband solutions as opposed to manufacturing more commoditized products. BHE provides customers with a wide range of test equipment, process automation and replication solutions, and other tooling design solutions for the manufacturing process. In addition to this, BHE offers aftermarket services for repair and replacement, amongst other services that can provide BHE with long-term recurring revenue.

By far, Semi-Cap is BHE’s largest market segment, commanding 29% of total revenue. Semi-Cap has been a durable growth market for BHE in recent years, in part as a result of market growth and market share gain. Outside of advanced semiconductor manufacturing, the industry has faced certain headwinds, particularly due to substantial market growth in China and inventory builds.

BHE is expanding its manufacturing footprint for Semi-Cap with the development of a new facility in Penang, Malaysia. This will translate to a substantial increase in capital spend for eq2’25 with guidance in the range of $15-20mm.

BHE has manufacturing facilities across 7 countries in order to provide regional manufacturing and distribution. This includes:

• US

• China

• Malaysia

• Mexico

• Netherlands

• Romania

• Thailand

The US accounts for roughly 36% of BHE’s manufacturing footprint with the broader Americas accounting for 55%, providing the organization with substantial flexibility in terms of tariff policy. In addition to this, 95% of BHE’s products qualify for USMCA tariff exemptions, allowing the firm to operate without additional import duties.

Given the current tariff policies imposed by the US, regional manufacturing should provide some cushion to import duties and trade restrictions across regions, particularly in China. With the recent news that the US will allow Nvidia to export H20 chips to China after being embargoed, I suspect trade talks are easing in favor of the technology industry. As suspected, China has a major hand to play in the matter given its dominance in the rare earth element [REE] market, allowing for the country to push for a more realistic trade deal that will benefit both countries.