Paul/Others-Trying to dig deeper into the Flextronics business plan/analyst revenue estimates. Following is my analysis and questions, any feedback would be appreciated.
Revenue:
FY 97 (3/31/97): $491mm - actual revenue
Est. FY 98 (3/31/98): $970mm - low-end analyst estimate, $1bb at top
Difference: $479mm
Est. Ericsson FY 98: $320mm - ~$350mm run-rate revenue when acquired,
deal closed one month into fiscal year so $30mm
rev. lost (may be less than $320mm this year as
q1 is $30mm light to to slow Ericcson DECT
business in Q2, but assume pick-up in back half)
Pickup Required in Base Business to Hit Revenue Target: $159mm + Lost Global Village at $25mm - $49mm = $184mm-$208mm or 37%-43% increase over last years $491mm from the existing base business.
Apparently, the revenue pickup will come from customers who were new/small last year that will be big this year.
Questions:
1)Am I being too harsh on the Global Village haircut? They were a 10% customer last year and are shrinking. How much? Is half going away or all of it?
2)Cisco is meant to be coming on strong. What product/s are they doing? What is the incremental pickup from last year?
Also I have heard Cisco is consolidating vendors from 13 down to 4. Is this true? Is Flextronics a long term winner with Cisco (a la Jabil)?
3)Advanced Fiber Communications is meant to be another pickup. However, AFC's market cap aside, it is a tiny company that will have ~$250mm in sales during Flextronics FY 98. Its COGS are 56% of sales, or ~$140mm. What share of COGS should Flextronics have as revenue (% of AFCs product they make * % of COGS of a product represented by Flextronics assembly). Assuming 50% share of AFC product and 80% of product COGS yields $56mm in revenue. How much of this would be incremental to last year.
4)Ascend is meant to be the other large pickup. Flextronics would not comment on what product they are doing, but in a previous post you mentioned it was Max TNT. Any thoughts on potential pickup from Ascend this year?
In summary, I like the Flextronics story and valuation a fair bit, but am concerned about revenue dissapointments over the short-term relative to seemingly aggressive targets. I think Michael Marks has a great vision for the future, but the company has certainly has had its share of short-term surprises lately (plant write-downs, coming up short on Ericcson right out of the box). They also have the challenge of getting capacity in place to handle this potential incremental volume, which is no small task (although the company indicates they are in good shape). Any comments/analytics on where the growth is coming from would be greatly appreciated.
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