Flextronics buys Solectron

Electronics equipment maker Flextronics International Ltd. bought rival manufacturer Solectron Corp. in a deal worth US$3.6 billion in stock and cash, the company said Monday.

Executives said the merger combines two of the largest electronic manufacturing services (EMS) in the world.

In a conference call, Flextronics CEO Michael McNamara said the merger will offer Flextronics increased scale, further extend market reach, realize significant cost savings, and better serve the needs of its customers and shareholders.

Flextronics’ customer base includes Casio, Dell Computers, Hewlett-Packard Co., Microsoft, Sony-Ericsson and Xerox Corp. Solectron’s client list includes IBM, NEC, Pace and Teradyne. Customers which appear on both companies’ client-lists include Cisco Systems, Kodak, Motorola, Nortel Networks, and Sun Microsystems.

Flextronics said the merger will give the company the opportunity to add top-tier customers to its portfolio.

“Flextronics will be gaining significant exposure to IBM, Alcatel/Lucent and HP’s medium and high-end servers,” McNamara said. “With little overlap in customer-base, we feel customers will be more delighted working with a combined company.”

Flextronics said that the acquisition of Solectron was attractive because of their stable earning results, as well as its high-quality operations.

At least one industry analyst said Flextronics’ motivation in making the deal was to keep pace with electronic manufacturing leader Foxconn.

“It’s basically survival of the fittest out there, with the deal putting two underachieving companies together hoping to make it compete at the top,” New Venture Research president Randall Sherman said. “Flextronics wants to create size and leverage, and has now doubled its size to level the playing field with its most prolific competitor Foxconn. [This is] a company which has left them in the dust for the last two years.”

Flextronics was once the leading electronic manufacturing firm, but was surpassed in revenues by Foxconn in 2005.

Sherman said he is skeptical of whether the deal will help Flextronics regain EMS supremacy.

“It will be difficult mainly because they don’t have the infrastructure that FoxConn has,” Sherman said. “There is nothing fundamentally changed here except they are just bigger, so they will continue to face the same problems of intense competition, defecting customers and trying to lower their operating costs.”

The buyout is expected to close by the end of the year with the approval of shareholders and regulators.

Following the merger, Flextronics will be operating in 35 countries, with approximately 200,000 employees. The company estimates annual revenues will exceed US$30 billion across seven well-diversified customer market segments and several vertical component divisions.

The Singapore-based EMS provider has Canadian offices in Calgary, Montreal, and Ottawa. Solectron has Canadian offices in Ottawa, Newmarket and Scarborough, Ont.


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