Santorum Investing in Outsourcing Firms

By Bob Drummond - Jan 21, 2012 12:00 PM GMT+0700

Rick Santorum, seeking the votes of factory workers and laborers in today’s South Carolina primary, has promoted what he calls his “Made in America” plan to eliminate U.S. corporate income taxes on manufacturing companies and reverse the flow of jobs to lower-cost countries.

When he invests, though, Santorum’s put some of his own money in companies that ship much of their manufacturing work to factories in China, Thailand, Malaysia and other countries.

Of 18 publicly traded stocks listed in the former Pennsylvania senator’s most recent financial disclosure, six companies sell fiber-optic equipment and outsource production to overseas factories-for-hire or operate their own plants abroad.

The payroll at one of Santorum’s investments, Fabrinet Inc. (FN), last year included 5,300 manufacturing workers in Thailand, 1,200 in China and 30 in the U.S., according to its latest annual report.

Fabrinet, which makes products under outsourcing contracts with other manufacturers, got almost 60 percent of its fiscal 2011 revenue from four Silicon Valley corporations: JDS Uniphase (JDSU) Corp., Oclaro Inc. (OCLR), Finisar Corp. and Opnext Inc. Santorum owned shares in all of them, according to the financial disclosure form he filed last year.

Santorum Response

Santorum said his manufacturing proposals are designed to give companies a benefit from hiring U.S. factory workers.

“My policies over my political career have been very clear -- what we’re trying to do is compete, so those companies can manufacture here in this country,” Santorum said in an interview. “The fact that I or anybody else invests in companies that you think are going to help you in your portfolio -- that’s why you invest. You make public policy for different reasons.”

Reviving U.S. factories is a central part of Santorum’s economic message. The grandson of a coal miner, he often speaks about growing up with blue-collar families in western Pennsylvania’s steel country.

Santorum was asked during a Jan. 19 South Carolina debate about encouraging the use of U.S. manufacturing workers by companies such as Apple Inc., (AAPL) which said in its latest annual report that “substantially all of the company’s hardware products” are made by contractors “primarily” based in Asia.

‘A Specific Plan’

“I’m the only person on this stage that will do something about it,” Santorum said. “I’ve got a specific plan in place” to cut corporate taxes, reduce energy prices and ease regulations at “exactly these kinds of companies that have great technology and then go somewhere else to make them because America is uncompetitive.”

He didn’t mention that he owned between $15,001 and $50,000 worth of Apple stock, according to his most recent disclosure filing.

Federal personal finance forms allow candidates to reveal the value of their investments in broad ranges. Altogether, Santorum owned publicly traded stocks worth between $154,000 and $710,000, including shares in fiber-optic companies valued at $11,000 to $165,000.

Santorum bought all of his individual stocks since filing his last congressional disclosure form at the end of 2006, after being defeated for re-election to the Senate. While in Congress, Santorum footnoted disclosure documents to say he invested only in “widely diversified” mutual funds.

Fiber-optic Investments

If Santorum held on to the equipment stocks, his shares have been falling as a weak economy slowed spending on fiber- optic network construction and flooding last October in Thailand idled two Fabrinet facilities. Oclaro shares have plunged 68 percent in the past 12 months. Opnext (OPXT) has dropped 36 percent, Finisar is down 33 percent, Fabrinet has slumped 28 percent, and JDS Uniphase has fallen 17 percent.

Santorum also invested in Quebec City, Canada-based Exfo (EXF) Inc., which makes testing and monitoring equipment for fiber- optic networks and does most of its manufacturing at plants in Quebec City and Shenzhen, China, according to a filing with the Securities and Exchange Commission. Exfo is down 31 percent in the past 12 months.

Rivals for the Republican presidential nomination had scattered investments in computer or other companies that make many of their products in other countries. Former Massachusetts Governor Mitt Romney owned Apple shares, and former U.S. House Speaker Newt Gingrich invested in Hewlett-Packard Co. (HPQ)

Single Industry

Santorum’s holdings stand out because one-third of his publicly traded stocks are concentrated in a single industry that makes a significant share of its products overseas.

Fabrinet, based in Grand Cayman, owned or leased almost 1.1 million square feet for operations in Thailand and China, according to its 2011 annual report, and has plans to expand in both countries. In the U.S., Fabrinet had a 20,000-square-foot plant in Mountain Lakes, New Jersey.

As it turned to outside contractors, Milpitas, California- based JDS Uniphase’s in-house manufacturing payroll dropped 87 percent to 1,950 people in 2011 from 14,979 in 2001, according to SEC filings.

“We remain committed to streamlining our manufacturing operations and reducing costs by using contract manufacturers where appropriate and consolidating to reduce our footprint and total fixed costs,” the company said in its 2011 annual report.

Made in Thailand

Products made by Fabrinet in Thailand account for about half the revenue in JDS Uniphase’s communications and commercial optical products business, which contributed more than 40 percent of the parent company’s $1.8 billion in 2011 sales.

Finisar (FNSR) employed 6,778 people in Shanghai and in Ipoh, Malaysia, compared with 712 U.S.-based workers, and plans to break ground this year on a factory in Wuxi, China, according to the Sunnyvale, California, company’s most recent annual report.

Opnext, of Fremont, California, got 43 percent of its revenue during the quarter ended Sept. 30 from products it hired Fabrinet to make in Thailand, according to a regulatory filing. On its own workforce, 300 of Opnext’s 500 employees are in Japan.

Oclaro outsources about 30 percent of its production to Fabrinet’s factories in Thailand, according to its SEC filings. San Jose, California-based Oclaro’s biggest company-operated plants are in China, the U.K., Switzerland and Italy.

To contact the reporter on this story: Bob Drummond in Washington at bdrummond@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net