Delphi Corp Says No Plans To Acquire Auto Parts Rivals

Detroit July 10, 2003; Dow Jones reports that even the industry-leading Delphi, which was spun off from General Motors in May 1999, cut its second-quarter earnings estimate about a month ago, citing weaker demand and production volume as well as legal costs.

Delphi now expects second-quarter net earnings of $85 million to $95 million, or 15 cents to 17 cents a share. The company previously expected earnings of between $160 million and $200 million.

The possible merger of ArvinMeritor and Dana also sends a clear sign that the auto parts industry has reached a major crossroad.

"I think it is safe to say as an industry that's going through consolidation, as this industry is, you're going to see more companies perhaps owned by finance houses and you're going to see more consolidation, and you're going to probably see more mergers and acquisitions," said Battenberg.

The ArvinMeritor-Dana deal, if completed, would bring a significant change in the industry, but it wouldn't impact Delphi's operations as not many of its products compete with those of ArvinMeritor and Dana, Battenberg added.

Instead of seeking benefits of scale, Delphi will continue to diversify, moving into areas other than its core automotive business and applying its technologies to products in adjacent industries such as medicine, aerospace and microelectronics, Battenberg said.

Such a move may be seen as a deviation from what the company has done well in so far, but it could be a winning new business model that secures the firm a leading position as a technology provider in those markets, he added.

The automotive industry is a "sector prone to high sales peaks and deep troughs," Battenberg said. "Remaining stuck in this cyclicality is what we're working aggressively to change."

Battenberg added that Delphi is on track to reduce its revenue dependency on orders from GM, which stood at about 63% at the end of the first quarter 2003.

He said revenue from non-GM customers would reach 39.5% of the company's total revenue by the end of this year, up from 37% in the first quarter. He added that Delphi's revenue from GM would fall to about half of its total revenue in two and a half years or so - as he promised when the firm went public four years ago.

Delphi expects $375 million to $475 million in net earnings this year, or 67 cents to 85 cents a share, on revenue of $27.5 billion to $28.0 billion.