Hi Patroller, Tom, and anyone else following the ECMs,
FLEX gave its mid-quarter update, not looking good. Lowered guidance for next two quarters. Focussing on cutting costs now. Another big writeoff. Stock fell below 11 in AH. Bloomberg article below.
Let's be careful out there,
Sam
06/03 19:51
Flextronics Cuts 1st-Qtr Profit Forecast; Shares Drop (Update3)
By Samantha Zee
Singapore, June 4 (Bloomberg) -- Flextronics International Ltd., the second-largest maker of
electronics for other companies' brands, cut its fiscal first-quarter profit forecast as it focuses on
shifting manufacturing to lower-cost regions.
The company's shares dropped 14 percent on the news. Profit in the period ending this month will
be 5 cents to 8 cents a share on revenue of about $3 billion, Chief Executive Michael Marks said on
a conference call. The company in April had forecast profit of 10 cents to 13 cents on revenue of as
much as $3.3 billion.
``Business conditions are tough. We won't earn what we expected this quarter or next,'' Marks said.
``We're not waiting for an upturn in the economy, even though everyone is talking about a
broad-based recovery. We have decided to focus on reducing our costs.''
Flextronics' clients include Sun Microsystems Inc. and Ericsson AB. The company has spent the past
six quarters cutting staff, closing plants in high-cost manufacturing areas and shifting to new sites,
particularly in Asia, where the company added operations in China.
Program Transfers
The moves are meant to help Flextronics weather a global economic slowdown that has crimped
demand, especially from telecommunications-equipment makers.
``Most of the reduction in the outlook is due to the company transferring programs to lower-cost
locations as opposed to any fundamental falloff in business,'' said Kevin Denney, an analyst at
Brean Murray & Co., who rates the stock ``strong buy'' and doesn't own any shares.
Among programs Flextronics is moving is the manufacturing operations of Microsoft Corp.'s Xbox
video-game console to China from Hungary. Other operations are also scheduled to move, Marks
said.
``They have to retrain labor, retool the plants and there are numerous inefficiencies involved in
program transfers,'' Denney said.
Flextronics shares fell as low as $10.61 in after-hours trading following the report. They fell 91 cents
to $12.32 in regular U.S. trading and have declined 49 percent this year.
$150 Million in Costs
The Singapore-based company said expenses related to the restructuring and cost-cutting will total
about $150 million in the first quarter. Excluding certain costs, Flextronics was expected to earn 11
cents a share, the average estimate of analysts polled by Thomson First Call.
``The charge is a surprise,'' Denney said. ``They've taken well over $1.2 billion in the past six quarters
and had said that was all they were going to take.''
Flextronics expects to announce details of job reductions and other cut-backs in July when it releases
its first quarter results.
The manufacturer's profit in the period ending in September will be 7 cents to 10 cents a share on
revenue of about $3.2 billion, Marks said on the call, which was a previously scheduled mid-quarter
business update. Analysts polled by First Call on average had forecast profit of 13 cents.
The company expects Asian-based revenue for the year to be about $4.5 billion, up about one third
from a year earlier, Marks said. Flextronics also expects revenue from China to climb 50 percent in
fiscal 2003 to $2 billion. |
