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If tech stocks are in such good shape, why are insiders selling shares in a bunch of companies that do manufacturing for the industry's biggest players?

The selling is particularly noteworthy given the stellar track record of insiders in this sector, which is usually called "electronic manufacturing services," or EMS. History suggests insider selling in the likes of


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(PLXS) - Get Plexus Corp. Report



(SANM) - Get Sanmina Corporation Report



( SLR) is a fairly grim portent.

At least, so argues Deutsche Bank analyst Chris Whitmore, who notes that insiders in those companies have sold more than $100 million since October, including more than $34 million in the last few weeks. The recent selling, he says, is greater than in the previous 15 weeks combined, according to reports filed with the

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"Over the past year, insider buying/seling has been a good, while not perfect, indicator of near-term stock performance," Whitmore, who is known for his generally bearish views on the sector, said in a recent note to clients.

Insiders, Whitmore said, timed the market's bottom in October, buying heavily in the face of an ugly slump. By late November, shares of the contract manufacturing companies rebounded 91%, three times the increase of the Nasdaq as a whole. Heavy insider selling followed in late November and shares declined by nearly one-third. But insider selling in late spring was mistimed -- shares climbed anyway.

Deutsche Bank has investment banking relationships with Celestica, Flextronics, Plexus, and Solectron. It has no relationship with Jabil or Sanmina.

Not everyone who follows the sector believes the selling is a significant signal. Alexander Blanton, who has followed contract manufacturing for years at Ingalls & Snyder, says, "I'd be a lot more worried by the selling if we were at the top of a cycle. We're not. We're at the beginning of a recovery."

Moreover, he notes that insiders at Flextronics, for instance, have fairly large outstanding loans from the company and need to pay them back.

The selling at Flextronics angered some investors because it began the day after a bullish

mid-quarter update by the company. Most notably,

CFO Robert Dykes sold off all of his shares in the company, although he still holds more than 1 million options.

Longer-term, the real issue for investors is this: Has the contract manufacturing sector burned off enough of the excess capacity built during the boom to raise margins and earnings? Not surprisingly, Whitmore and Blanton are on opposite sides of the issue.

Although he is a long-term bull, Blanton says that the trend toward outsourcing manufacturing is still being slowed by the amount of expensive capacity owned by OEMs in Europe and North America. "No one is going to buy it, they have to close it." Ingalls & Snyder does not have investment banking relationships with the companies mentioned in this story.

Companies that sell products under their own name are called original equipment manufacturers. Originally, OEMs hired contract manufacturers to build products for them, utilizing capacity owned by the contract manufacturer, when demand was high.

More recently, OEMs have been selling their factories to the contract manufacturers, who in turn use them to build products for the OEM on an ongoing basis. Jabil, for example, bought nine plants from Phillips last year.