Profit contributors:
Well, from what I can surmise, the following plants are the major contributors:
China- Doumen is supposedly the most profitable plant in their system and one of the largest sites. They call it a campus, like the campus in Guadalajara and Hungary. Flextronics owns the site, but has leased facilities to suppliers who want to locate next to the Flex plant. The facility is geared toward making small or minature electronic items like personal organizers, mice, thermometers, and some telecom items (phones??). There they make almost everything needed:
- miniature circuit boards (Astron purchase- which is causing the goodwill amortization.)
- plastic enclosures (FICO Plastics- they own 40% with an option to buy the remaining 60% next December in a cash deal dependent on the unit performance. They almost certainly will buy the rest of the unit- see my post last summer for the economic analysis of this deal)
- board assembly
- final assembly
- warehousing
I noticed in Marks most recent lettter that they added programs for Ericsson, Alcatel, and Phillips in China last Q. I don't know the products, but would guess phones for Ericsson and Alcatel, and some sort of consumer electronic item for Phillips. In addition to the big plant at Doumen, they also have a smaller facility at Xixiang. They are planning to expand both facilities this year, Xixiang now , and break ground in Doumen later in the year. I wonder whether concerns over Asia, and the common knowledge that the Chinese operations are the core profit centers for this company, have hurt the stock.
The Singapore plant is not very profitable and is being downsized to mostly a design and prototype facility I believe. They recorded a charge in the DecQ a year ago connected with this, but seemed to have stretched out the implementation. The Malaysian facility also was marginally profitable and I don't have much info on this site.
In the Americas, the San Jose facility was losing money until start-up of the new building this year. Apparently SJ went profitable in the SepQ and solidly profitable in the DecQ, with new busines from Cisco, Bay Networks, WebTV, and continuing business from Ascend (Max TNT product- major internet access port device for ISPs).
The 150,000 square feet Guadalajara plant just started up, making some kind of product for Lucent(phones??) their only customer at the time. However they have new programs for WebTV and Phillips(consumer deivice) scheduled for Guadalajara (timing??), and have broken ground on a 120,000 square foot expansion. From what I understand, the Guadalajara operations will be very profitable. Last Q the building still had some space, and was suffering higher startup and training costs though.
The Brazil ops just purchased is a small facility, and would require some investment to expand to a world class facility. They haven't revealed their plans yet, and would be stupid to do so until they close the deal by April 1st. The SJ ECM company buyout was to get ECM capacity in the SV fast, and will also close by April 1st. The current plant is running at one shift; they plan to go to three shifts right after closing. Flextronics will report about a $4M charge in the JunQ connected to closing these two deals. The Brazilian plant won't be a significant profit contributor until they do something there. But they do bring new customers like NEC, Epson, Verifone, AOC, De La Rue, and Olivetti into the fold. The SJ plant will probably contribute something to earnings, but given the size of the two transactions, I don't think it will be a huge push. Flex has not revealed the terms of the deals, but did say they will issue 530,000 new shares to close these deals. That amounts to about $18-19M at the current price of the stock. Using a rough estimate of one times revenues, that means the deals may add about $20M to annual revenues, and about $1M to earnings, which is one penny per share per Q. Just guestimates.
In Europe, the main Hungarian campus is very profitable and is expected to have a similar financial return similar to Doumen and Guadalajara. The major customers there are Phillips and Nokia. They are planning two expansions at this point, and have already predicted a 50% revenue growth here for calendar 98 over calendar 97.
The Karlskrona plant in Sweden has the profitibility locked in this year as part of the Ericsson deal. The profit margin is not high here, but is essentially guaranteed for now. They make office PBX equipment and radio phone equipment, and apparently started a new program for Ericsson in the SepQ, I don't know the product, but I believe it was part of the original deal.
The Wales plant is not performing as well, and my guess is that it isn't profitable at this point. Marks has indicated that they made a mistake not locating in Ireland instead. Its a fairly small facility.
In summary, China, Mexico, Hungary, and San Jose are the main profit centers. Flextronics has set themselves up to be a large telecom device manufacturer with Ericsson, Nokia, Lucent, Alcatel etc in their fold, with networking sector a strong player as well with Cisco, Ascend, etc and with Adavanced Fibre (AFCI).
Hope this suffices, suggest everyone read Marks latest letter to shareholders. This is a complex stock to analyze.
Paul |
