Flextronics Deal Creates Competition for Taiwan’s Hon Hai
With its recent agreement to buy rival Solectron for $3.6 billion, Flextronics is hoping that it will gain the manufacturing and marketing muscle needed to keep pace with its other foreign rivals.
The deal brings the manufacturing capabilities of the Flextronics, a Singapore-based firm, together with the Milpitas, Calif.-based Solectron’s well-known strengths in the market for telecommunications equipment. The two companies have aggregate revenue of $30 billion.
Flextronics has been on the march under the stewardship of Mike McNamara, who was promoted to CEO from chief operating officer in January 2006. He’s added clients, including firms such as Eastman Kodak Co., making some of its digital cameras, and has also expanded profit margins. But Solectron lacked the market share and was feeling its margins get squeezed, and many experts believe it has to seek a buyer.
Once this merger is done, the now-more-muscular Flextronics will be able to go after such rivals as Hon Hai Precision Industries, a Taiwan company that makes Mac minis, the iPod and the new iPhone for Apple, and all three of the current gaming systems sweeping consumer markets. It also makes PCs for Hewlett-Packard, motherboards for Intel and cell phones for Nokia.
Prior to this Flextronics-Solectron deal, Hon Hai had taken over the No. 1 spot as the world’s largest contract-electronics manufacturer, with 2005 sales of $28.5 billion. That represented a six-fold increase from 2001. Additionally, net profits were $1.3 billion — $100 million ahead of even the most aggressive forecasts. Little wonder Business Week referred to Hon Hai as “a profit machine.” Unfortunately for U.S. investors, Hon Hai’s shares aren’t registered with the Securities and Exchange Commission, meaning U.S. retail investors can’t trade them.
Flextronics hopes to have its buyout of Solectron finished by year-end.
