Contract
Manufacturing
Flextronics vs. Solectron
Source: http://www.ventureoutsource.com/news_articles/EMChina_Sep_03.html
Contract Manufacturing
Flextronics vs. Solectron
o Solectron Corp. was riding high in 1999, the fastest
growing CM. Revenues rose from $300 million in
1989 to $8.4 billion in 2000. CEO (until
2003)/Founder: Koichi Nishimura based in CA.
Present CEO Mike Cannon. Pioneered Electronics
Manufacturing Services (EMS)
o Flextronics International Ltd. In 1993 had revenue of
$100 million and grew to $1.8 billion of revenue in
2000. CEO Michael Marks. Corporate offices in
Singapore and San Jose.
o By 2005,

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Solectron – Revenue $12 billion
Flextronics – Revenue $16 billion
What happened?
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Contract Manufacturing
Flextronics vs. Solectron
FLEX
Market Cap:
Employees:
Rev. Growth (ttm):
CLS
SANM
SLR
Industry
6.83B
82,000
8.60%
2.74B
40,000
-18.60%
2.89B
48,721
17.80%
4.32B
57,000
5.70%
307.06M
492
16.80%
Revenue (ttm):
Gross Margin (ttm):
EBITDA (ttm):
16.06B
5.67%
337.38M
8.84B
4.61%
-530.00M
12.49B
5.25%
127.57M
11.63B
5.24%
252.00M
159.81M
40.40%
4.21M
Oper. Margins (ttm):
Net Income (ttm):
EPS (ttm):
1.34%
281.63M
0.484
-6.59%
-854.10M
-3.791
0.95%
-6.38M
-0.014
0.31%
-152.70M
-0.179
2.21%
841.00K
0.04
24.94
0.78
0.44
N/A
0.99
0.31
N/A
0.71
0.23
N/A
0.89
0.39
27.43
1.44
2.30
PE (ttm):
PEG (ttm):
PS (ttm):
o CLS- Celestica
o SANM – Sanmina
Data: Yahoo Finance, 3/15/2005
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Contract Manufacturing
Flextronics vs. Solectron
o Both companies aggressively pursued acquisitions
pre-2000 (competitors, suppliers, OEM plants)
o Both were too dependent on Telecom
o Then came the downturn in telecom


Flextronics moved faster to cut capacity, reduce
workforce and move manufacturing to lower-cost sites.
Flextronics branched out into consumer electronics.
o Integrating acquisitions


Solectron mishandled its new assets, lost sight of
customer service and became a bloated bureaucracy in
which decisions passed through many layers of
management.
Flextronics integrated acquisitions smoothly; steadily
improved customer service; and kept a lean, flat
structure in which the executives closest to the
customers make the key decisions.
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Contract Manufacturing
Flextronics vs. Solectron
o From 1997 through 2002, the companies made a
combined 75 acquisitions.
o 27 of Flextronics' 43 acquisitions were other CMs or
OEM plants. The rest were a mix of logistics providers,
materials suppliers, software developers and design
firms.
o 24 of Solectron's 32 acquisitions were OEMs or CMs.
Of the other eight, six were in repair, including a
customer call center company.
o Solectron bought revenue, Flextronics bought services
and capabilities. It was able to leverage the services
and capabilities during the downturn, because there
was a demand for them. Solectron ended up with a lot
of excess capacity.
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Contract Manufacturing
Flextronics vs. Solectron
o Solectron's big mistake was to acquire two large
competitors in the same year—the year the downturn
began.
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In early 2001, it bought NatSteel Electronics Ltd.,
Singapore, for $2.4 billion, and later that year, it acquired
C-MAC Electronic Systems Inc., Montreal, in a $2.7-billion
stock swap.
NatSteel had more than 2.3 million square feet of factory
space at 11 sites, mostly in Asia, and 12,000 employees.
C-MAC had 52 manufacturing facilities around the globe
and 9,000 employees.
Integration was difficult - C-MAC alone had about 35
different enterprise resource planning (ERP)
systems.
o In 2001, Solectron acquired a call center company,
Stream International, Canton, MA. It added 10,000
employees in 22 call centers and a business model
foreign to Solectron. The acquisition's goal was to
service a budding repair business.
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Contract Manufacturing
Flextronics vs. Solectron
o Flextronics' only big acquisition was DII Group Inc.,
Niwot, CO, for $2.4 billion in stock in 2002. It had 2.9
million square feet at 22 sites and 12,000 workers.

Flextronics' acquisitions have typically been smaller and
more strategic, easier to integrate
o CEO Marks "We always buy a culture that is similar to
ours, with an executive who thinks the way we do."
o Marks says Flextronics' strategy was to expand evenly
in Asia, Europe and North America, especially to lowcost places such as China. "We were much more
global than Solectron. We started in Asia, and it
started in North America. We had a strategy of being a
player in all three markets. Solectron was slow to
recognize the other two."
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Contract Manufacturing
Flextronics vs. Solectron
Unbalanced portfolios
o When the downturn hit, Flextronics and Solectron
were too heavily dependent on networking and
telecom, which accounted for half or more of
revenues.
o Flextronics suffered less. Before the downturn,
Flextronics won contracts in consumer electronics, the
first large CM to do so on a large scale.
o Even much of its telecom business was on the
consumer end—in mobile handsets—which was not
hurt as much as telecom equipment. Consumer
spending was the one bright spot in the downturn,
and Flextronics benefited.
o Aside from mobile handsets, Flextronics' first
consumer contract was the Xbox game console for
Microsoft. The Xbox had a domino effect, including the
2002 acquisition of some plants of Casio Computer
Co. Ltd., Tokyo, a consumer electronics OEM.
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Contract Manufacturing
Flextronics vs. Solectron
o Consumer electronics were not popular at CMs,
because the margins are the lowest in a lowmargin business.
o For Flextronics, cell phones, the Xbox and HP printers
have been stable through the downturn.
o Marks acknowledges that Flextronics has recently
swung too far in the consumer direction and is trying
to rectify that.
o Solectron now says that there is great potential in
consumer electronics – automotive, industrial, defense
and medical are segments.
o Solectron is banking on repairs to become a significant
business. Solectron won the repair contract for the
Xbox, although that contract is much smaller than
Flextronics' Xbox manufacturing deal.
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Contract Manufacturing
Flextronics vs. Solectron
Customer Service
o Despite its troubles, customers still consider
Solectron's process technology the best, but
many believe that Flextronics is better at handholding.
o Solectron set a high bar for quality in an industry that
once notoriously lacked it (won 2 Malcolm Baldridge
awards). Just to compete, everyone else had to catch
up and they have
o In its acquisition blitz, Solectron may have lost sight
of customer service.
o By 2000 a lot of customers recognized that Solectron
was not doing well from an operational standpoint and
started to pull work from it. For example, Ericsson
moved much of its cell handset business to
Flextronics.
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